VENSAV3160 | examples of how the 60% test worked

When applying the 60% test materials in the calculation included all of the goods supplied to the customer as part of the installation and which remained in place once the job had been completed.

Example 1; a business carried out an installation of solar panels combined with a battery for the storage of power generated from the solar panels. The materials included: solar panels, inverter, cables, batteries, distribution board and customer unit. These were all goods that were supplied to the customer as part of the installation and so need to be included in the 60% test calculation.

Instead of, the tools and equipment used by an installer as a means of carrying out and installation. For example, where solar panels were fitted to the roof of a house, an installer would normally make use a ladder or scaffolding to access the roof. However, the installer was not selling the ladder or scaffolding to the customer and nor did they remain in place after the job has been completed and so these did not count as materials for the purposes of the 60% test.

Example 2: a business installed insulation in a residential property. The business (the installer) was charged £400 (excluding VAT) for the insulation material and charged its customer £1,000 (excluding VAT) for the installation. Since the value of the materials (the insulation) was only 40% of the cost of the total supply to the customer, the 60% threshold had not been exceeded. Therefore, the installer could charge the reduced rate of 5% on the total supply i.e. 5% of £1,000 = £50.

Example 3: a business installed solar panels in a residential property. The business (the installer) was charged £2000 (excluding VAT) for the solar panels and charged its customer £3,333 (excluding VAT). Since the value of the materials (the solar panels) was 60% of the cost of the total supply to the customer, the 60% threshold had not been exceeded. Therefore, the installer could charge the reduced rate of 5% on the total supply i.e. 5% of £3,333 = £167.

Example 4: a business carried out an installation of solar panels combined with a battery for the storage of power generated from the solar panels. The business (the installer) was charged £3,500 for the solar panels and battery (excluding VAT) and charged its customer £5,385 (excluding VAT) for the installation. Since the value of the materials (the solar panels and the battery) was 65% of the cost of the total supply to the customer, the 60% threshold had been exceeded. This meant that the business needed to separately identify the value of materials supplied to its customer and charge VAT at the standard rate. The labour element of the supply would have continued to qualify for the reduced rate.