The European Court of Justice (ECJ) has ruled that the UK’s reduction in VAT rate for energy-saving materials for housing violates the EU’s VAT Directive.
A large range of energy-saving measures installed on residential accommodation in the UK currently benefit from a reduced VAT rate of 5% instead of the standard 20%.
The judgment handed down on Thursday claims that the UK “cannot apply, with respect to all housing, a reduced rate of VAT to the supply and installation of energy-saving materials, since that rate is reserved solely to transactions relating to social housing.”
The Treasury had previously argued that the lower VAT rate was legal under EU law because the Green Deal and ECO schemes were both social policies. Under EU law member states can only apply reduced VAT rates in the housing sector if it is part of a social policy.
|Controls for central heating and hot water systems|
|Solar panels (PV and thermal)|
|Ground source heat pumps|
|Air source heat pumps|
|Micro combined heat and power units|
“For a typical biomass or heatpump installation costing in the region of £10-12,000 this will make a difference of at least £1,500 to the end consumer which will have a major impact on their decision to install a renewable technology or not” -- Griff Thomas, GTEC
Reacting to the ruling, UKIP energy spokesman Roger Helmer MEP said: “This is simply ridiculous beyond belief. While the EU claims it wants to reduce energy consumption, this judgement shows what the EU ‘really really wants’ is to increase its take from the VAT system from which it takes a portion of every transaction.”
Helmer continued: “Not content with banning tungsten light bulbs previously, the EU wants to make it more expensive for ordinary people to save energy and money in their own homes.”
Griff Thomas, managing director of GTEC Group added: “The EU directive that is being quoted allows for ‘renovation and repair’ to be reduced rated, however the European Court of Justice feels that this doesn’t extend to circumstances where the ‘materials account for a significant part of the value of the service supplied’, this is a major blow for not only the solar PV sector but other technologies which will also now have to be standard rated.
“The question is will the UK government appeal this decision and if not, what can they do to ensure that the low carbon and renewable market doesn’t grind to an absolute halt bearing in mind that the return on investment profiles have been based on systems attracting the lower 5% VAT rate as opposed to the now proposed 20% rate.”. .