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UK faces courts over Green Deal VAT break

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The European Commission has confirmed it will take the UK to court over reduced VAT rates on green construction materials

The EU raised the possibility of legally challenging the UK government’s reduced tax rates for energy efficient materials back in November.

The Commission issued a statement yesterday (21 January) confirming it will refer the UK government to the EU court of justice.

Under EU VAT rules, member states may apply reduced VAT rates materials used in the housing sector as long as this is part of a social policy. Energy saving materials could be covered by this provision if the conditions are met. However, there is no provision in the VAT Directive to allow a reduced VAT rate on energy saving materials specifically.

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.

A statement from the Commission said: ‘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. Economic studies have shown that reduced VAT rates are often not the best way to achieve policy objectives or change consumer choices.’

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