Section 193: VAT: Reduced Rate for Energy-Saving Materials
Summary
1.Section 193 amends the legislation relating to the reduced VAT rate for the installation of energy-saving materials (ESM). Its effect is to reduce the scope of this reduced rate to residential accommodation, removing buildings intended for use solely for a relevant charitable purpose.
Details of the Section
2.The section amends Items 1 and 2 of Group 2 of Schedule 7A to the Value Added Tax Act 1994 (VATA) by removing the references to buildings intended for use solely for a relevant charitable purpose so that the reduced rate is restricted to supplies of services of installing ESM in residential accommodation.
Background
3.The UK applies a reduced rate of 5 per cent VAT to the supply and installation of certain ESM (listed in the attached Annex) in a building that consists of a dwelling or a number of dwellings, a building or part of a building used for a relevant residential purpose, a caravan used as a place of permanent habitation, a houseboat or a building intended for use solely for a relevant charitable purpose (i.e. by charities for non-business purposes or as village halls or similar buildings).
4.The relevant UK legislation for the reduced rate of VAT can be found at Section 29A of Schedule 7A VATA. The EU vires for this legislation can be found at article 98 of, and Category (10) of Annex III to, the Principal VAT Directive Category (10) (Category (10) refers to the 'provision, construction, renovation and alteration of housing, as part of a social policy').
5.The European Commission (Commission) has taken the view the UK is unlawfully applying the reduced rate because ESM are not listed in Category (10) and also because the UK has applied a reduced rate to their installation as part of an environmental, not a social, policy. In addition, buildings intended to be used solely for a relevant charitable purpose are not, in any case, housing as referred to in Category (10). The UK Government disagrees with the Commission’s first two points but accepts its final point, namely that charitable non-business buildings and village halls cannot properly be described as housing. The UK Government has therefore introduced this legislation to restrict this reduced rate to supplies of services of installing ESM in residential accommodation
