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The European Union’s directive to increase the current VAT rate of supply and installation of energy-saving materials, including insulation, may just kill the Green Deal.


Currently, the UK government is giving a reduced rate of 5% VAT for such materials and services for the Green Deal. But the Brussels directive stated that this rate is illegal, challenging the UK government to change this law within two months. 


Failure to do so might just lead to facing the European Court of Justice, which has the power to give member states fines that go against the EU law.


According to the EU, such reduced rates are only allowed to be levied on medical supplies, food, contraceptive materials, and other goods, including tickets to the zoo.


Builders Merchants Federation Policy Manager, Brett Amphlett said:

"Any increase in the cost of materials will affect the Golden Rule calculation. The ruling will have major implications for the Green Deal if the Government is forced to increase VAT on insulation, central heating and hot water system controls, heat pumps and solar PV and thermal panels to the 20% standard rate."


"Existing arrangements are complex, confusing and do not favour green improvements. We reckon most SME builders do not know how these apply at present – and it is unlikely their customers do either. But these are the very same people the government wants to adopt the Green Deal when it comes into force in 80 days’ time."


BMF fears that the nearing Summer Recess of Parliament may push EU’s demand through the back door.


Although EU law allows trimmed down VAT rates on a number of services and goods, including “provision, construction, renovation and alteration of housing, as part of a social policy,” EU says that “the UK’s application of a reduced rate in this area contravenes EU legislation.”

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