EU rules UK’s energy-saving tax breaks ‘illegal’

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 […]

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By Priyanka Shrestha

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.”