Renewable technologies industry calls for clarity regarding EU ruling on reduced VAT

At the beginning of July, an open letter was sent to the Chancellor of the Exchequer regarding the recent European Court of Justice ruling on reduced VAT. Last month, the ECJ declared that the UK “cannot apply […] 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.”

The EU ruling was met with apprehension from the renewables sector as the implications may be widespread. The ruling could cause the cost of some renewable technology installations to increase as end-users find themselves faced with the standard rate VAT being applied rather than the current reduced rate of 5%.

In a letter dated 3rd July 2015, several renewable trade associations alongside manufacturers and suppliers addressed their concerns to George Osborne. The letter, which was co-ordinated by the Sustainability Energy Association, asks for the Government to give clarity on the situation and the UK’s response to the EU ruling.

The letter urges the UK Government to “find all legal means possible to preserve as many of the reduced rates as [they] can so that policy delivery is not compromised”. Many in the renewables sector feel that the “uncertainty as to the timing of any changes is particularly unsettling”.

When the ruling was first announced at the beginning of June, a Government spokesperson commented that the UK Government would “study the judgment carefully and consider the next steps”. A month on, the letter to the Chancellor encourages Ministers to “confirm that nothing (if anything) will change until the March 2016 budget at the earliest, and possibly considerably after.”

At present, no announcement has been made by the Government confirming the UK’s response to the potential increase in VAT rates for renewable technology installs. The letter concludes asking for a “clear statement by a Minister […] would be a helpful confidence boost to the markets for the energy saving materials and technologies that currently qualify for the reduced rates.”

It is hoped that this letter will encourage the UK Government to release a statement regarding this EU ruling and clearly layout the Government’s response. As per the statement released by a Government spokesperson immediately after the ruling, end-users who have pre-ordered or pre-paid for energy saving materials should be reassured that they will not be affected by the required changes as a result of the EU ruling.

Grant UK will update the Reduced VAT Rate page when further details are announced.

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