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EU tax directive threatens Green Deal VAT break

The EU has raised a legal challenge against the UK government’s reduced tax rates for energy efficient materials

The tax rate for insulation materials currently stands at 5 per cent and is deemed to be key to the success of the Green Deal programme.

If the UK government is forced by the EU to amend the tax rate it will be harder for homeowners to meet the Green Deal’s Golden Rule and could further reduce the success rate of the scheme, which has already been marred with problems.

This VAT relief was first introduced in the UK back in 1998, and covered insulation, draft proofing, and central heating controls. Since its introduction it has grown to cover solar panels, ground and air source heat pumps, micro CHP units and biomass boilers.

The EU VAT directive states that a lower rate of VAT is only acceptable for the ‘provision, construction, renovation and alteration of social housing’ and there is no provision within EU law to allow a reduced rate for energy saving materials.

The government was warned by the EU in June, and was given two months to bring the rate of VAT in line with the required 20 per cent levels. The UK is now threatened with being taken to the European Court of Justice.

When asked to respond a spokesperson from DECC said: ‘The Government disagrees with the European Commission’s view that the current reduced rate of 5 per cent VAT for the installation of energy saving materials is unlawful and will vigorously defend the relief if the European Commission refers the matter to the European Court of Justice.’

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