The European Commission is referring the UK to the EU Court of Justice (ECJ) over its reduced VAT rate on the supply and installation of energy saving materials (ESM).
The Commission says that measure "goes beyond what is allowed under the VAT directive".
Under EU rules, reduced VAT rates can be used by member states for the housing sector, as long as it's part of a social policy.
However, the UK's use of the reduced rate on ESM specifically and its link to the Green Deal to improve energy efficiency has no provision in the VAT Directive.
Referring the UK to the ECJ is the last step in the infringement procedure, according to the Commission.