The CJEU has gone straight to judgment in the infringement case brought by the European Commission that UK legislation applying a reduced rate of VAT to the supply and installation of energy-saving materials in residential accommodation – such as micro-combi boilers, insulation or solar panels – is not allowed under EU law, which applies the reduced rate only to social housing. The judgment, (C-161/14), means that VAT on energy-saving materials will have to be charged at the UK standard rate (currently 20%), a decision which will likely impact consumers, housing associations, charities and not-for-profit organisations that are unable to recover VAT on underlying costs.
Ian Carpenter, Baker Tilly’s head of VAT, said: ‘The UK has been aware of the European Commission’s challenge that it was in breach of EU VAT rules for years, and previously had to address that breach by removing the VAT reduced rate to the installation of energy-saving materials in charitable buildings. Clearly this did not go far enough.
‘Despite this, the UK government must however have been confident that this decision would go in its favour, as the recent Queen’s speech made it clear that new legislation would ensure that there would be no extension to the scope of VAT. This judgment appears to have scuppered those plans.
‘We will now have to await how the government will interpret and subsequently react to this decision. It may determine that only social housing tenants can be provided with the supply and installation of energy-saving materials at a reduced rate, and that consequently owner-occupiers must pay VAT at the standard rate. It may also need to find a more efficient way of promoting energy efficient materials while remaining in line with EU VAT law, possibly through the use of direct subsidies. Without addressing such issues, the undoubted impact will be a significant rise in costs for consumers and others installing energy-saving materials in residential homes.’
The CJEU has gone straight to judgment in the infringement case brought by the European Commission that UK legislation applying a reduced rate of VAT to the supply and installation of energy-saving materials in residential accommodation – such as micro-combi boilers, insulation or solar panels – is not allowed under EU law, which applies the reduced rate only to social housing. The judgment, (C-161/14), means that VAT on energy-saving materials will have to be charged at the UK standard rate (currently 20%), a decision which will likely impact consumers, housing associations, charities and not-for-profit organisations that are unable to recover VAT on underlying costs.
Ian Carpenter, Baker Tilly’s head of VAT, said: ‘The UK has been aware of the European Commission’s challenge that it was in breach of EU VAT rules for years, and previously had to address that breach by removing the VAT reduced rate to the installation of energy-saving materials in charitable buildings. Clearly this did not go far enough.
‘Despite this, the UK government must however have been confident that this decision would go in its favour, as the recent Queen’s speech made it clear that new legislation would ensure that there would be no extension to the scope of VAT. This judgment appears to have scuppered those plans.
‘We will now have to await how the government will interpret and subsequently react to this decision. It may determine that only social housing tenants can be provided with the supply and installation of energy-saving materials at a reduced rate, and that consequently owner-occupiers must pay VAT at the standard rate. It may also need to find a more efficient way of promoting energy efficient materials while remaining in line with EU VAT law, possibly through the use of direct subsidies. Without addressing such issues, the undoubted impact will be a significant rise in costs for consumers and others installing energy-saving materials in residential homes.’
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