The European Court of Justice has found that the UK has applied the Reduced Rate of VAT too widely in allowing the 5% rate on domestic supplies of energy saving materials. Generally the reduced rate can only be used for ‘social policies’ and using it as a general incentive for green measures is not sufficient – furthermore doubt has been raised as to the types of materials, as they do not fall into the permitted categories of ‘renovation of alteration of housing’.
Although a case specifically concerning itself with new build for charitable and residential purposes; the York University Case does contain useful insight into how HMRC (and the Courts) consider phased works. This can be applied to 5% schemes where properties are either converted or brought back into use after a period of abandonment. The 5% VAT rate relates to the physical conversion of such a property and once ‘complete’ the 5% rate is expired.