Protocol blocks VAT reduction on green energy, but executive will receive cash equivalent
A PLANNED VAT reduction for energy-efficient materials will not be implemented in Northern Ireland due to the post-Brexit protocol, the UK Chancellor has said.
Rishi Sunak said Stormont would still benefit from the cash equivalent through the Barnett formula.
But the money, estimated at around £1.3million a year, cannot be allocated until the executive is back up and running.
The protocol means the north must follow EU VAT rules, which currently prohibit rates below 5% on energy bills.
Touted as a ‘green tax cut’ in the Chancellor’s spring statement, the new policy will reduce the 5% VAT on energy-efficient materials to zero for a period of five years from April 2022.
Mr Sunak said it will include solar panels, heat pumps and insulation.
But he said: “This policy highlights the shortcomings of Northern Ireland protocol. Because we will not be able to apply it immediately in Northern Ireland.
The Chancellor said the UK government planned to raise the matter with the European Commission “as a matter of urgency”.
The EU is slowly moving towards a new tax directive, which would give EU member states more flexibility to apply zero-rating on certain goods.
But even if they are passed this spring, it could be 2025 before the new rules are in effect.
Straight from Northern Ireland MPs in the House of Commons on Wednesday, Rishi Sunak confirmed the executive would receive a Barnett share of the value of the VAT relief until it can be introduced across the UK.
But spending the money will require a functioning executive at Stormont.