The European Commission has started infringement proceedings against the UK relating to the UK’s application of the 5% reduced VAT rate on energy saving materials, according to a press release issued by the Commission on 21 June 2012.
The UK must amend its legislation and apply the standard rate to such supplies and if the legislation is not amended within two months, the Commission may refer the matter to the European Court of Justice.
Member States are entitled to apply reduced VAT rates only to a limited number of goods and services. These are clearly listed in Annex III of the VAT Directive. This list does not include the supply and installation of "energy saving materials".
Suppliers of energy saving materials should review impending contracts and supplies to determine whether they can take advantage of the current reduced rate for their customers by for example accelerating the work to be done or achieving tax points for supplies while the VAT rate is still 5%.