Affecting the installation of energy saving measures including micro-combi boilers, insulation and solar panels, the ruling means that such measures can no longer benefit from a reduced rate of 5% VAT.
Instead, the court ruled they will have to be charged at the standard UK VAT rate of 20%.
George Bull, senior tax partner at accountancy firm Baker Tilly, said the judgement presented a direct challenge to the UK government commitments made in the Queen’s Speech.
“This judgment is a further example of the EU’s willingness to curtail the UK’s legislative freedom, and it presents a direct challenge to the ‘triple lock’ commitments given in the Queen’s Speech,” Bull said.
“Depending on the government’s response, it could also lead to higher costs for affected groups seeking to improve the energy-efficiency of their homes.”
Joining Bull was Ian Carpenter, the firm’s head of VAT, who said that the outcome would be determined by the government’s interpretation and reaction to the decision.
“It may determine that only social housing tenants can be provided with the supply and installation of energy-saving materials at a reduced rate, and that consequently owner-occupiers must pay VAT at the standard rate,” Carpenter said.
“It may also need to find a more efficient way of promoting energy efficient materials while remaining in line with EU VAT law, possibly through the use of direct subsidies.
“Without addressing such issues, the undoubted impact will be a significant rise in costs for consumers and others installing energy-saving materials in residential homes.”