The European Commission has asked the United Kingdom to amend its legislation which allows a reduced 5% VAT rate for the supply and installation of “energy-saving materials”. This measure goes beyond the scope allowed under the VAT Directive.
Under EU VAT rules, Member States can only apply reduced VAT rates to a limited number of goods and services, which are clearly listed in Annex III of the VAT Directive. This list does not include the supply and installation of “energy saving materials”. Therefore, the Commission considers that the UK’s application of a reduced rate in this area contravenes EU legislation.
The request takes the form of a Reasoned Opinion (the second stage of an infringement procedure). If the legislation is not brought into compliance within two months, the Commission may refer the matter to the European Court of Justice.
HMRC allow a reduced rate of VAT on
- controls for central heating and hot water systems
- draught insulation (eg around windows and doors)
- insulation on walls, floors, ceilings, lofts, etc
- solar panels
- wind turbines
- water turbines
- ground-source heat pumps
- air-source heat pumps
- micro combined heat and power units
- wood-fuelled boilers
The lower rate is only available if the energy saving materials are actually installed, and the work is done on your home.
We will need to see whether the UK simply agrees to this change or whether it contests it. What is clear is that if you are either buying, selling or installing items which fall in the above list, you need to act quickly if you are to benefit from reduced rating.