5% VAT rate on Energy Saving Materials under threat
Following its recent defeat at the European Court (CJEU), the UK will now be obliged to change the law and remove the reduced rate of VAT on energy saving materials in many cases. This case was brought by the EU Commission who viewed the UK’s approach as overly generous. The court agreed and ruled that the reduced rate on both installation services & the energy saving materials themselves should be removed if the sales are not part of either:
a) ‘the provision, construction, renovation and alteration of housing, as part of a social policy’; or
b) the ‘renovation and repairing of private dwellings.
c) In addition, even if the sales are part of the renovation and repairing of private dwellings, the reduced rating should not apply if those sales include materials which account for a significant part of the value of the services supplied. (These scenarios could prove tricky to determine).
It may be some time (months) before the UK changes the national law, during which time the UK’s reduced rating is still legal.
However, the writing is on the wall and affected vendors and customers may wish to bring forward projects to avoid the VAT increase that will arise.
Date: 12th June, 2015
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