Business

Protocol blocks green energy VAT cut but executive will get cash equivalent

A planned cut in VAT for energy saving materials can't be implemented in Northern Ireland at present due to the protocol, the chancellor has said.

A PLANNED VAT cut for energy saving materials won’t be implemented in Northern Ireland due to the post Brexit protocol, the UK chancellor has said.

Rishi Sunak said Stormont will still get the cash equivalent benefit through the Barnett formula.

But the money, understood to be around £1.3 million per year, can’t be allocated until the Executive is back up and running.

The protocol means the north must follow EU VAT rules, which currently prohibits rates below five per cent on energy bills.

Billed as a ‘green tax cut’ in the chancellor’s Spring Statement, the new policy will reduce the five per cent VAT on energy saving materials to zero for a five-year period from April 2022.

Mr Sunak said it will include solar panels, heat pumps and insulation.

But he said: “This policy highlights the deficiencies in the Northern Ireland Protocol. Because we won’t immediately be able to apply it Northern Ireland.”

The chancellor said the UK Government plans 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 select goods.

But even if adopted this spring, it could be 2025 before the new rules are in force.

Directly addressing Northern Ireland MPs in the House of Commons on Wednesday, Rishi Sunak confirmed the executive will receive a Barnett share of the value of the VAT relief until it can be introduced UK-wide.

But spending the money will require a functioning executive at Stormont.

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