On 31 July 2015 the UK tax authority HMRC published Revenue and Customs Brief 13 (2015) on the reduced rate of VAT on the installation of energy saving materials.
The European Commission commenced proceedings in the European Court of Justice as in its view the UK applied the reduced rate for the installation of energy saving materials in a way that was not in accordance with EU law. A decision of the European Court of Justice (ECJ) on 4 June 2015 agreed with the European Commission that the UK had implemented this VAT relief in a way that was not consistent with EU law. The relief was a social relief and should be targeted at the groups in society that this relief was designed to help, rather than being implemented on a broad basis.
The ECJ also considered that the installation of energy saving materials must amount to a renovation or alteration of housing before the relief could be given. The UK VAT relief was therefore given for too wide a range of supplies. Some of the installed goods that are currently subject to the lower rate of VAT should in the view of the ECJ not be included in the reduced rate category.
HMRC states in Revenue and Customs Brief 13 (2015) that it is considering the implications of the ECJ decision. However any legislative changes made in the UK as a result of the ECJ decision would not be enacted until the Finance Act 2016. Any change made to the VAT law would not apply to supplies of energy saving materials that have already been made.
