EU takes UK to court

The UK has been referred to the EU Court of Justice by the EU Commission for applying a reduced VAT rate on the supply and installation of energy-saving materials, reports Chartered Accountants Northampton Harris & Co.

Under EU VAT rules, member states may apply reduced VAT rates to the supply of goods and services used in the housing sector, so long as this is part of a social policy. Energy saving materials could be covered by this provision if the conditions are met ie, if they are used for social policy purposes in the construction, renovation and alteration of housing.

However, there is no provision in the VAT Directive to allow a reduced VAT rate on ‘energy saving materials’ specifically, and the universal application of a reduced rate for energy saving materials is therefore not allowed. By allowing a reduced VAT rate to all energy saving materials, the Commission claims the UK is going beyond the scope of what is permitted under EU law.

The Commission is aware that the reduced VAT rate for energy saving materials has been linked to the UK"s ‘Green Deal’ to improve the energy efficiency of buildings. While it supports the objectives of the UK Green Deal, the Commission does not believe that breaking EU VAT rules will help in achieving these objectives.

The referral to the EU Court of Justice is the last step in the infringement procedure.