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VAT Relief on Energy-Saving Materials
If you're installing certain energy-saving materials in residential properties or charitable buildings, you may be able to charge zero-rate VAT (0%) instead of the standard 20%. This relief applies to both the installation service and the materials you supply when you install...
Introduction
If you're installing certain energy-saving materials in residential properties or charitable buildings, you may be able to charge zero-rate VAT (0%) instead of the standard 20%. This relief applies to both the installation service and the materials you supply when you install them, but strict rules determine what qualifies and when.
What is the VAT relief on energy-saving materials?
From 1 May 2023 to 31 March 2027, the installation of specified energy-saving materials qualifies for zero-rate VAT. This means you charge 0% VAT instead of the standard 20% rate.
The relief applies to installations in residential accommodation and certain charitable buildings in the UK. From 1 April 2027 onwards, these installations will revert to the reduced rate of 5% VAT.
Who can apply this relief?
You can apply the zero rate if you're a contractor or subcontractor who installs energy-saving materials in qualifying properties. This includes:
- Builders and contractors carrying out installation work
- Specialist installers of insulation and heating equipment
- Subcontractors working on behalf of main contractors
The relief does not apply if you simply sell energy-saving materials without installing them. Retailers selling these materials without installation must always charge standard-rate VAT at 20%.
What qualifies for zero-rate VAT?
The relief covers two main categories:
Installation of specified energy-saving materials – The government has a specific list of materials that qualify (covered in the next section). You can charge zero-rate VAT when you install these materials.
Groundworks for heat pumps – From 1 May 2023 to 31 March 2027, groundworks necessary for installing ground source and water source heat pumps also qualify for the zero rate. This applies to work carried out in residential accommodation and charitable buildings, including work in the curtilage (grounds) of these properties.
When does the relief apply?
The relief applies when you either:
- Install energy-saving materials that your customer has purchased separately from a retailer, or
- Supply and install energy-saving materials as part of the same job
If you only supply the materials without installing them, you must charge standard-rate VAT at 20%.
What counts as installation?
Installation means putting energy-saving materials permanently in place. This involves some process where materials are fixed into position. The exception is loft insulation, which may simply need to be unrolled and positioned correctly to count as installed.
Installing energy-saving materials alongside other work
When you install energy-saving materials at the same time as other building work, you need to determine whether you're making a single supply or multiple separate supplies. This matters because it affects which VAT rate applies.
Single supplies
A single supply occurs when one element is the principal (main) supply and everything else is ancillary (supporting). An ancillary element doesn't constitute an aim in itself for the customer – it's simply a better means of enjoying the main supply.
Indicators of a single supply include:
- A single price for the whole job
- The work is advertised as a package
- The components aren't available separately
- Everything is installed at the same time, so the customer perceives they're getting one supply
Example 1: Loft insulation with a new hatch
If you install loft insulation in a residential property and need to cut a new loft hatch in the ceiling to access the loft, cutting the hatch is ancillary to installing the insulation. The hatch is only being supplied to support the main supply (the insulation), not as an aim in itself. This counts as one single supply that benefits from the zero rate.
However, if you supplied the loft hatch cutting service on its own, it would be standard-rated at 20%.
Example 2: Central heating systems
Sometimes multiple components supplied together don't have a single dominant element – they have equal importance but form something else entirely.
If you install a complete central heating system consisting of a conventional boiler, radiators, copper pipes, radiator valves, and heating controls, this is a single standard-rated supply. Even though some individual components (like thermostatic radiator valves and hot water system controls) might qualify for zero-rate VAT if supplied alone, when supplied together they form a standard-rated central heating system.
This is because a central heating system isn't included in the list of energy-saving materials. The whole supply is standard-rated because the predominant elements are standard-rated.
Note: Grant-funded heating equipment installations may still qualify for the reduced rate of 5% under separate rules (see below).
Reduced-rate VAT on grant-funded heating equipment
Separate from the energy-saving materials relief, there's a reduced rate of 5% VAT available for grant-funded installations of heating equipment. This reduced rate has been available since 1 October 2019 and continues to apply – there have been no recent changes to this relief.
This applies when heating equipment is installed as part of a grant-funded scheme. The 5% rate applies to both the equipment and the installation service.
Where does the relief apply?
The zero-rate relief applies to installations in:
Residential accommodation – This covers homes where people live, including houses, flats, and similar residential properties.
Charitable buildings – Buildings used solely for relevant charitable purposes also qualify for the relief.
The relief extends to work carried out "in the curtilage" of these properties, which means the grounds or land immediately surrounding the building.
What happens after 31 March 2027?
The current zero-rate relief is temporary. From 1 April 2027 onwards, installations of energy-saving materials will revert to the reduced rate of 5% VAT. You'll need to charge 5% instead of 0% for installations carried out from that date.
Key points to remember
- The zero rate only applies when you install qualifying materials – not when you simply sell them
- The relief runs from 1 May 2023 to 31 March 2027, reverting to 5% afterwards
- You must determine whether you're making a single supply or multiple supplies when combining energy-saving materials with other work
- Different rules apply to grant-funded heating equipment (5% reduced rate)
- The relief applies to residential accommodation and charitable buildings
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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