The ECJ has ruled that the UK’s reduced rate of VAT applicable to energy-saving materials breaches EU law, namely the VAT Directive.
Under the Directive reduced VAT rates lower than the stipulated minimum “must have been adopted for clearly defined social reasons and for the benefit of the final consumer”. In the context of the provision, construction, renovation and alteration of housing, the reduced rates must have been adopted as part of a social policy. In the context of renovation and repair of private dwellings, such rates must exclude materials which account for a significant part of the value of the service supplied.
The ECJ held as follows:
- By providing for the application of the reduced rate to all supplies of services of installing energy-saving materials and to supplies of such materials, irrespective of the housing concerned and with no differentiation among people living in that housing, the UK rules could not be regarded as adopted for reasons of social interest within the meaning of EU law.
- Further, the UK rules provided that supplies of services of installing energy-saving materials in residential accommodation and supplies of such materials may qualify for a reduced rate of VAT, without excluding materials which accounted for a significant part of the value of the service supplied.
- Overall, therefore, the UK rules breached the aforementioned provisions of the VAT Directive.
Case C-161/14 Commission v United Kingdom
