Dáil Éireann Debate, Wednesday - 9 October 2024
38. Deputy Claire Kerrane asked the Minister for Finance if he would consider extending the reduction of 23% to 9% of VAT for heat pumps, to all appliance using renewable fuel given that many households may not be able to afford to retrofit their homes; and if he will make a statement on the matter. [40344/24]
View answer46. Deputy Seán Canney asked the Minister for Finance if he will apply a lower rate of VAT to all home heating appliances using renewable fuel, such as firewood stoves, pellet stoves and pellet boilers, which will help local economies, reduce reliance on both electricity and imported gas and fossil fuels such as oil; and if he will make a statement on the matter. [40427/24]
View answer49. Deputy Michael Fitzmaurice asked the Minister for Finance to consider extending the reduction in VAT to apply to all appliances using renewable fuel; and if he will make a statement on the matter. [40431/24]
View answerI propose to take Questions Nos. 38, 46 and 49 together.
The VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, unless they fall within categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate of VAT.
In accordance with EU law, Member States can decide to apply a reduced rate of VAT on “the supply and installation of highly efficient low emissions heating systems”, provided that the products meet the requirements of certain EU regulations concerning emissions and energy labelling.
Further to this provision in the Directive, in Budget 2025, I announced that, with effect from 1 January 2025, the 9% rate of VAT will apply to the supply and installation of heat pump heating systems.
The purchase of all other heating systems and of heating appliances continues to be subject to the standard rate of VAT, which is currently 23% in Ireland. However, where there is a contract for the “supply and installation” of a heating system, then, under VAT law, the “two-thirds rule” may apply. The two-thirds rule provides that if the cost of the goods used in carrying out the work does not exceed two-thirds of the total price, then the VAT rate which applies to the service is the rate that applies to the entire transaction. This means that, in such cases, the supply and installation would be subject to the 13.5% reduced rate of VAT, rather than the 23% standard rate.
No decision was made in Budget 2025 to apply a reduced rate of 9% to heating systems outside of heat pumps. If such a measure was proposed it would form part of the normal Budget and Finance Bill process where the cost and impact could be considered.
The Deputies should note that as with other VAT rate reductions, while the VAT charged must always be correct a company can increase the base price of a product so that the final consumer does not benefit from the VAT reduction. In addition, the stringent emission standards set out in the VAT directive would not allow a reduced rate to apply to all heating systems or appliances on the market.
