UK to fight EU over energy efficiency VAT

A dispute with the European Commission over the UK’s preferential VAT rates for energy-saving materials is set to intensify.

The government has confirmed that it will defend itself against possible infringement proceedings by the European Commission for its lower rate of VAT on insulation and energy-saving equipment.

The Treasury currently charges a lower 5% rate on insulation, solar panels, heat pumps, central heating and hot water controls compared with the overall 20% rate.

The move follows a reasoned opinion by the Court of Justice of the EU last month (ENDS Report 450, p 39), which concluded that the UK was in breach of the VAT Directive. This argued that there is no provision in EU law covering reduced VAT for energy-saving materials and that reductions for buildings used for charitable purposes were not permitted.

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