HM Revenue and Customs Brief 26/12
Submit Articles Back to Articles
Issued 20th August 2012
VAT - withdrawal of the reduced rate of VAT for energy saving
materials installed in buildings used for a relevant charitable purpose
- infringement proceedings by the European Commission
Purpose of this Brief
At Budget 2012, the Government announced its intention to
withdraw the reduced rate for energy saving materials (ESM) installed
in buildings used solely for a relevant charitable purpose. The
Government is taking this action following pre-infraction communication
with the European Commission (EC) who pointed out that this reduced
rate is not permitted under European law. This Brief seeks views on two
questions arising from the Budget 2012 announcement.
On 21 June 2012, the EC published a Reasoned Opinion which is
the first public step in the process of taking infringement action
against the UK in respect of its reduced rate for ESM (whether
installed in residential accommodation or in buildings intended for use
solely for a relevant charitable purpose). This Brief explains that the
Government's view is that the reduced rate for the installation of ESM
in residential accommodation is consistent with the VAT Directive and
it will be defending this.
Who needs to read this?
Businesses in the construction sector who install ESM,
charities that use buildings solely for a non-business use and anyone
who manages a village hall or similar establishment.
The UK applies a reduced rate of VAT to the installation of
ESM in various types of building. However, the EC has initiated legal
proceedings against the UK on the basis that this reduced rate is not
allowed in EU law and the UK is therefore in breach of its obligations
as a Member State of the European Union.
The EC has commenced these proceedings on three grounds:
- that there is no specific provision in EU law to allow a
reduced rate for ESM
- that the EU provisions on which the UK relies as the legal
basis for the reduced rate (Category (10) of Annex III to the Principal
VAT Directive) only apply where introduced 'as part of a social
policy', whereas the UK's relief for ESM has been introduced as part of
an environmental policy, and
- that, in any event, the UK's relief is too wide as the EU
provisions on which it relies apply only to housing, which does not
include buildings used for a relevant charitable purpose
While the Government does not agree with the arguments in
relation to the first two bullet points above, it has reluctantly
accepted that the argument in the third bullet point is correct.
Consequently, at Budget 2012, the Government announced its intention to
withdraw this reduced rate from charitable buildings as part of Finance
Bill 2013 and informed the EC of this.
The subsequent publication of the EC's Reasoned Opinion
indicates that it intends to proceed with the infraction against the UK
in any event. The Government will continue to defend the remainder of
the reduced rate.
The Government intends to introduce legislation in Finance
Bill 2013 to withdraw the reduced rate for ESM installed in buildings
used for a relevant charitable purpose with the legislation to come
into effect on the first day of the month following Royal Assent
(likely to be 1 August 2013). However, HMRC seeks the views of those
affected on the following questions:
- Does the proposed date (1 August 2013) for the removal of
the reduced rate for the installation of ESM in relevant charitable
buildings present any particular problems? If so, can you explain what
they are and what alternatives you propose?
- Are there any particular factors that HMRC should take into
account when making this change?
Given that nearly a year's prior notice of the withdrawal of
this relief has been given, the Government does not intend to provide
for any additional transitional rules (subject to comments received on
the questions above). However, where work has commenced for the
installation of ESM before the date of withdrawal (provisionally 1
August 2013), the reduced rate will continue to apply to the whole
installation even if part of that installation is performed after that
Responses should be sent by 20 October 2012 by email to Sandy
Mackie or by post to:
VAT Liability Team
Room 3/34, 3rd Floor
100 Parliament Street
About the Author
© Crown Copyright 2012.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2012-08-24 09:04:27 in Tax Articles