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UK Government to fight European Commission over VAT on Energy Efficiency Materials

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The UK government has vowed to fight against the European Commissions demand to raise VAT from 5% to 20% on energy efficiency materials in June, and now the European Commission’s two month deadline is up.

The move caused consternation in industry because of the implications it would have on programmes such as the Green Deal.

The Treasury said that they would challenge the demand, and a coalition of companies that would be affected requested that the government “robustly defend it’s position”. The HMRC has responded to the European Commission and said that they would defend the UK’s VAT relief.

HMRC posted a briefing note on it’s next steps which can be seen below:

The note says that the EC has commenced these proceedings on three grounds:

i) That there is no specific provision in EU law to allow a reduced rate for ESM;

ii) That the EU provisions on which the UK relies as the legal basis for the reduced rate (Category (10) of Annex III to the Principal VAT Directive) only apply where introduced ‘as part of a social policy’, whereas the UK’s relief for ESM has been introduced as part of an environmental policy;

iii) That the UK’s relief is too wide as the EU provisions on which it relies apply only to housing, which does not include buildings used for a relevant charitable purpose.

HMRC said that it accepted the third point, with reluctance and had already made the necessary provisions for it in this year’s Budget.

Charitable buildings will be likely to have to pay the higher rate of VAT from August 2013, however the HMRC will defend it’s position on the other two grounds.

The timetable for EC action, and what would happen if the UK loses, is not yet clear. The Green Deal launches in October.

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