Court action over reduced VAT on ESM

Published:  05 March, 2013

After much confusion within the industry over the appropriate application of VAT on energy saving materials (ESM), it was announced in February that the European Commission has decided to refer the UK to the EU Court of Justice over its reduction of VAT on the supply and installation of energy-saving materials.

Under EU VAT rules, member states may apply reduced VAT rates to the supply of goods and services used in the housing sector, as long as it is part of a social policy. ESM could be covered by this provision if the conditions are met (i.e. used for social policy purposes only in construction, renovation and alteration of housing).

It is believed that the UK has gone beyond what is permitted and broken the EU VAT rules. The UK has universally applied the reduction of VAT to ESM without restricting it to a social policy. The UK has also linked the reduction of VAT on ESM to the Green Deal in order to help its government achieve its overall objectives in the reduction of carbon emissions. If ruled unlawful, the UK could face huge penalties.

John Thompson, APHC chief executive said: “After much confusion over the application of reduced VAT to energy-saving materials, this news could come as another blow to the industry. APHC strongly supports the UK government in its defence, as this could have considerable consequences to the renewable energy plumbing and heating market.”