Raise VAT on energy saving to 20%, European court tells UK

A European court has told the UK government that the reduced 5% rate of VAT it applies to energy-saving solar panels and insulation for homes is unlawful. The European Court of Justice ruled this week that installations in private sector homes should carry the standard 20% rate.

The ruling is the latest round in a long-running battle. The EU outlawed the reduced VAT rate in 2013, but the UK appealed against the decision, arguing that its Green Deal and ECO mechanisms for the reduced VAT rate were social policies. However, the European court has now ruled that only social housing installations are entitled to the lower rate. It said, “The UK cannot apply, with respect to all housing, a reduced rate of VAT to the supply and installation of energy saving materials”.

The move is a further blow to the government’s struggling Green Deal and ECO home retrofit schemes, and to the UK’s home retrofit and renewable technology sectors, which have faced continuing uncertainty in policy and funding.

The reduced rate currently applies to the following home technologies:

  • Photovoltaic and thermal panels
  • Wood fuelled boilers
  • Micro combined heat and power units
  • Air source and ground source heat pumps
  • Water and wind turbines
  • Insulation and draught stripping
  • Controls for central heating and hot water.

The government is considering its position but there are not likely to be any short-term changes to the VAT rate due to the UK legislative process.

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