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EU reversal on UK domestic energy reduced VAT?

  • Jul 20, 2015 | Richard Asquith

EU reversal on UK domestic energy reduced VAT?

The European Commission (EC) this week indicated that it may revise its rules that saw the European Court of Justice (ECJ) ban the UK’s reduced VAT concession on the installation of home solar panels, wall insulations and hot water boilers (4 June 2015).

EC reviews implications of ruling

The EU Commissioners discussed the implications of the case this week in the context of EC President Claude Junker’s ‘Investment Plan’. The plan includes a review of VAT and tax policies to stimulate investment in energy efficiency.

The EC also has a broader commitment to promote positive climate change measures, which the ruling could undermine.

A change of view from the EC could be a source of political relief to the UK since the ruling potentially threatened the Conservative government's ‘Tax Lock’ election manifesto commitment to not raise VAT. It could also leave the UK government's £600m Green Deal on course to achieve its targets.

ECJ rules against UK’s energy saving VAT measures

The ECJ held in June that the UK would have to raise VAT on household energy saving measures from 5% to 20% with immediate effect.  The EC had brought the case against the UK. Expenditure subject to the reduced 5% VAT rate included the installation of solar panels, insulation for roofs and walls, and energy-efficient hot water systems for homes.

Under the EU VAT Directive, member states may vary VAT rates on certain products.  However, the ECJ ruled that the Directive limited these derogations tightly, and energy-saving measures are not included.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara