European Court rules 5% VAT rate on installing energy saving materials illegal

The European Court of Justice has ruled that a reduced 5% VAT rate on installing energy saving materials for properties is illegal.

The decision claims that the reduced rate breaks VAT Directive and should be reinstated at 20%, for both products installed and supplied in housing.

The 5% rate is currently paid on a range of products including draught insulation, controls for central heating, solar panels and
heat pumps. The ruling conflicts with the government’s promise not to raise VAT, and if complied with, will increase the cost of effectively insulating homes. There was no immediate response from the government on whether they will recognise this change. Critics argued that it would be unjust to increase VAT on making homes more energy efficient when VAT is charged at 5% on the consumption of energy.

This is a blow to listed property owners, as it is one of the few reduced rates on VAT we could utilise. It was also especially important as listed properties often require more work and expense to become energy efficient than more modern buildings.

We will take a strong stance on this and it will form part of our campaign, as we attempt to keep the new ruling from being adopted by our government