A ruling by the European Court against the UK Government means that VAT will have to levied at the full 20% on energy efficiency items such as solar panels and insulation.
The European Court of Justice has ruled that the UK policy of charging a reduced level of VAT on these items – brought in by Gordon Brown when he was Chancellor – is in fact, in breach of EU law and must cease immediately.
The European Court of Justice on Thursday ruled that the UK’s longstanding reduced five per cent rate of VAT on energy-saving products was in breach of EU laws.
The court said that the reduced VAT rate should only apply to social housing – meaning that VAT is likely to be raised on these items for homeowners.
This would add hundreds of pounds to the cost of installing home insulation measures and rooftop solar panels – despite the fact the EU has imposed renewable energy targets on the UK and wants the UK to improve its energy efficiency.
This ruling is in opposition to that given by EU finance minsters in 2009, when they agreed that member states may set their own rates of VAT on a range of sectors.