EU takes UK to court over VAT

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Yesterday the European Union announced it is taking the UK to the European Court of Justice over the Government’s 5% VAT rate on ‘energy saving materials’.

This 5% rate is much lower than the standard VAT rate of 20%. The lower rate applies to energy saving materials including the installation of:

  • controls for central heating and hot water systems
  • draught insulation (eg around windows and doors)
  • insulation on walls, floors, ceilings, lofts, etc
  • solar panels
  • wind turbines
  • water turbines
  • ground-source heat pumps
  • air-source heat pumps
  • micro combined heat and power units
  • wood-fuelled boilers

The European Union explained that the VAT Directive does not permit reductions on “energy saving materials” specifically. Whilst it does approve of VAT reductions in order to achieve social policy outcomes, the EU does not believe breaking EU VAT rules will lead to the policy outcomes of the UK’s Green Deal to reduce emissions and increase energy efficiency.

Rather, the EU would prefer “direct subsidies” than violation of the VAT Directive.

The EU says referral to the European Court was the last step of appeal for a change in UK government policy.

Tim Aker, Campaign Director of the Get Britain Out campaign, said the EU’s plans would “make it more expensive for the British public to heat homes and mitigate the cost of already high energy bills”. He said “the EU has more interest in keeping VAT harmonised than heating homes and keeping energy bills down, their ruinous energy policies show that much. The British government must hold firm and fight Brussels diktats that demand they tell our elected government how much VAT should be. The EU has no mandate to meddle in the tax affairs of our country.”

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