In 2012 the European Commission commenced infraction proceedings against the UK claiming the UK’s application of the reduced rate for the installation of energy saving materials was not in accordance with EU law.
The decision from these proceedings were published in June 2015. In this the court agrees with the Commission that the UK had implemented the relief in a way incompatible with EU law.
The court found that the UK application was too wide reaching, and that the reduced rate should only be applied as part of a social policy and should be targeted to those the policy is designed to help.
The UK government is currently considering the implications of the decision. They have, however, confirmed that any changes will not be made prior to the Finance Act 2016.
Due to the way the reduced rate is applied, requiring the installation to be in a residential property, this change will have no effect on most businesses. However for individuals this represents a potential future increase in the cost of fitting energy saving materials.
Therefore this also represents a potential planning point. If anyone is considering installing any energy saving materials (see the list below for what HMRC consider to be within this definition) this should be done as soon as possible due to the risk of the reduced rate being removed.
- According to HMRC’s guidance on this area items that are considered to be energy saving are:
- controls for central heating and hot water systems
- draught stripping
- solar panels
- wind turbines
- water turbines
- ground source heat pumps
- air source heat pumps
- micro combined heat and power units
- wood-fuelled boilers
The reduced rate does not apply to the installation of other energy-efficient products, such as energy-efficient boilers (although this can change if the installation is grant-funded), secondary or double glazing, low-emissivity glass, or energy-efficient fridge freezers.
If you would like to discuss this further please contact your usual Ryecroft Glenton partner.