UK householders may have to pay more for insulation and solar panels following an EU ruling.
The European Court of Justice (ECJ) said the UK’s reduced VAT rate for energy-saving home improvements is “illegal” as it failed to comply with the VAT Directive.
Residential energy-saving installations in the UK currently benefit from a reduced VAT rate of 5% instead of the standard 20%.
The ECJ said the UK “cannot apply, with respect to all housing, a reduced rate of VAT to the supply and installation of energy-saving materials since that rate is reserved solely to transactions relating to social housing”.
A government spokesperson said: “The Government will study the judgement carefully and consider next steps.”
It added no one who has already pre-ordered or pre-paid will be affected by the required changes as a result of the ruling.
David Weatherall, policy expert at the Energy Saving Trust added: “This a huge backwards step and we have fully supported the UK’s fight to maintain a low rate of VAT on energy saving products.
“The UK is going through a solar revolution with millions of homeowners taking advantage of green energy but an increase in VAT could bring our progress in this area to a grinding halt.”