5% VAT on energy saving materials ‘illegal’

European Union judges have told the UK that its lower rate of value-added tax (VAT) for home energy efficiency renovation is illegal. Britain enjoys a reduced rate on the installation and supply of energy saving materials for housing, but now faces fines unless it changes the rules, according to European news agency Euractiv.

The European Court of Justice (ECJ), which rules on points of EU law has agreed with the European Commission and ruled that the lower price broke the VAT Directive.

Currently, energy saving measures such as insulation are subject to a reduced VAT rate of 5% rather than the standard rate of 20%. The UK’s reasoning is that the refurbishment of ageing and leaky housing stock constitutes a ‘social policy’, which permits the reduced rate.

Commission taxation spokeswoman Vanessa Mock said the UK must take immediate measures to comply with the judgment and that the Commission would follow the matter closely: ‘However, the objective of supporting energy saving in itself is supported by the Commission and there are other ways of promoting the installation of energy-saving materials while remaining in line with EU law, for example through direct subsidies.’

·       The not-for-profit Green Deal Finance Company (GDFC) says it has broken through the landmark figure of £50mn in Green Deal plans and applications. Over £30mn has so far been lent by the company for the pay-as-you-save home energy efficiency scheme, and over £20mn worth of applications are now moving through GDFC systems. Boilers, solar PV, and external wall insulation are the top three measures financed by the GDFC, with acceleration in recent months of the role of solar PV in finance plans. The GDFC has an average plan size of £3,500.