UK resists VAT rise on energy measures till at least 2016

Wed 12th Aug 2015

Following the 4 June 2015 ECJ ruling on the UK’s 5% VAT rate on energy saving expenditure, HMRC has confirmed that it will not act until at least 2016.

The ruling against the UK was for its use of the reduced UK VAT rate on supplies of domestic measures to help cut carbon emissions. Such expenditure covered the installation of solar panels or energy-efficient boilers. The European Court of Justice held that since such expenditure was not entitled to the reduced rate, as per Appendix III of the VAT Directive, the UK would have to raise the rate to the standard 20%.

In addition, the ECJ found that the justification for the reduced rate could not be granted under the social policy exemption since the reduction did not apply equally to everyone.

UK hopes for change on energy EU VAT

On 31 July, HRMC issued a guidance note that it would not change the rate before the next Finance Act, which would be April 2016 at the earliest. HMRC also confirmed that it would not make any 2016 changes retrospective.

It has been reported that the European Commission may reconsider the position it has taken on such expenditure since it potentially undermines its own commitment to promote green investment policies.