Zero Vat for installation of Heat Pumps and other "energy saving materials"
Zero Vat is now available for supplies of services of installing "energy saving materials", including heat pumps and solar panels from 1 April 2022 for five years.
Installation of any of the following energy saving materials in residential accommodation qualifies for the zero rate of Vat:
- air source heat pumps
- ground source heat pumps (including ancillary supply like ground works)
- solar thermal panels (including ancillary supply like thermal storage cylinders and controls)
- PV panels (including ancilary supply like electric storage batteries and controls)
- insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings
- draught insulation (eg around windows and doors)
- controls for central heating and hot water systems (including thermostatic radiator valves)
- wind turbines
- water turbines
- micro combined heat and power units
- wood-fuelled boilers
Zero Rate Vat also applies to Ancillary supplies to the installation of "energy saving materials"
The zero rate applies to any necessary extra work that needs to be done as part of the installation. For the installation of a ground source heat pump system this includes the heat pump, the ground loop, system controls and any other installation ancillary to the supply. Because a heat pump installation generally provides heat at a lower temperature than a fossil fuel boiler there may be a need to increase the number or size of the radiators as part of the ancillary work or to install underfloor heating.
Where the installation of new radiators and pipes are ancillary to the installation of a heat pump, these are eligible for the zero rate as part of a single supply of energy saving materials. Pipes and radiators have not been added to the list of qualifying materials themselves, and therefore will continue to be standard rated when installed as a standalone product.
In a similar vein, if battery storage is supplied as part of the installation of any qualifying material, including solar PV panels, it will benefit from a zero Vat rate (for the next five years). Battery storage has not been added to the list of qualifying materials itself and therefore will continue to be standard rated when installed as a standalone product.
It is important that the invoice for the supply and install of these "Energy Saving Materials" only covers these "Energy Saving Materials". If it also covers other works, such as a new extension to an existing house, then the whole invoice is likely to be subject to 20% VAT.
If a heat pump is installed in a new build house, then the rate would be 0% – because new builds are zero-rated for VAT, but this does not apply to work done on existing houses.
Reduced Rate VAT at 5% for Energy Saving Materials – up to 31 March 2022
Between 1 October 2019 and 31 March 2022 there had been a Reduced Rate of Vat of 5% on supply and install of "energy saving materials", but only in restricted circumstances. These circumstances were defined in HMRC VAT Notice 708/6 Energy-saving materials. The strict restrictions on availability (including age restrictions) were brought in to comply with European Court of Justice in 2019 (see VAT Order 2022 notice) but were lifted from 1 April 2022.
The reduced rate VAT at 5% continues to apply in Northern Ireland. For details see HMRC VAT Notice 708/6.
Boiler Upgrade Scheme
The Boiler Upgrade Scheme grant of £6,000 is available on the installation of ground source heat pump systems, and £5,000 for air source heat pump systems.
See Ten reasons for the UK to use ground source energy to reduce carbon emissions.