The European Court of Justice (ECJ) has ruled that the UK has failed to comply with the VAT Directive as it has applied a reduced rate of VAT to the supply and installation of energy saving materials for housing.

The ruling was originally put in place in 2011 and BSRIA says it is hugely disappointed that the carbon reduction industry has been singled out to be charged the standard rate VAT.

Affecting the installation of energy saving measures including insulation, central heating and hot water system controls, heat pumps, solar photovoltaic and solar thermal panels, and wind and water turbines, the ruling means that such measures can no longer benefit from a reduced rate of 5% VAT. Instead, the ECJ ruled they will have to be charged at the standard UK VAT rate of 20%.

BSRIA chief executive, Julia Evans, said: “Government should have the courage of their convictions; yet again the energy efficiency industry is to suffer at the hands of this decision. Installation of energy-saving materials is the only category within the 5% reduced rate VAT that will be increased to the standard rate; all other categories... will remain at the reduced rate.

“This decision, therefore, flies in the face of the industry trying to achieve its climate change targets and build on energy-saving measures. If government could have exercised continued discretion for longer – this would have helped.”

There is no opportunity for government to appeal the decision of the ECJ. Changes will not take place until Budget 2016.