Taxing the cooling – MHA

As the UK experienced its hottest day of the year last week, and potentially one of the hottest years on record, many people’s minds are turning to the installation of air conditioning either now or in time for next summer.

However,  as the new Chancellor prepares for the October Budget, he could be about to scupper those plans by adding a 20% VAT charge to the installation of air con.

Glyn Edwards, VAT Director at MHA explains why:

“Adding a 20% VAT charge to the installation of air con would be a relatively easy tax change to frame as removing a relief on what many still see as a discretionary or higher-end home improvement, even though cooling is increasingly becoming a practical necessity for some households, care settings and workplaces.

“There is currently a 0% VAT rate for the supply and installation of certain ‘energy-saving materials’, including air source heat pumps. That relief was really aimed at green heating appliances, but fixed air-conditioning units are usually air source heat pumps too, meaning they can benefit from the zero rate, even if that may not have been the original intention of the legislation.

“There is also a timing issue for the Government. The zero rate is due to expire on 31 March 2027, meaning the Chancellor will need to decide whether to extend it, let it revert to the previous 5% rate, or go further and apply the standard-rate of 20% to air con installation.”

Among its UK locations accountancy and advisory firm MHA has offices in Edinburgh and Aberdeen.