Why the reduced rate of VAT?

There is a steady stream of Tax Tribunal appeals concerning the reduced rate, especially in relation to the installation of energy saving materials.  This will start to dry up, now the scope has been massively reduced.

The reduced rate also applies to certain residential renovations and alterations.

One of the earliest FTT decisions a ‘changed number of dwellings’ conversion (Sch 7A, Group 6, not Group 7 as the headpiece states). The Tribunal made this helpful summary about the reasoning behind having the reduced rate:

The reduced rates were introduced by the Finance Act 2001 under the powers conferred on Member States by Article 12(3)(a) of the EC Sixth Directive and Annex H. Category 9 of the Annex H covers, "Supply, construction, renovation and alteration of housing provided as part of a social policy." Beyond the fact that Group 6 applies to changed number of dwellings conversions, multiple occupation conversions and special residential conversions, it is not apparent from the statute what the social policy is. It is not confined to an increase in housing provision.

The decision involved The Wellcome Trust. You can read it here: www.bailii.org/uk/cases/UKVAT/2003/V18417.html