Reduced rate VAT – 0% – applies on installation of Ground Source Heat Pumps
The reduced rate of 0% will be available for supplies of services of installing energy saving materials, heat pumps and solar panels from 1 April 2022 – as announced in the Spring Statement on 23 March 2022.
Installation of any of the following energy saving materials in residential accommodation qualifies for the lower rate of VAT:
- controls for central heating and hot water systems
- draught insulation (eg around windows and doors)
- insulation on walls, floors, ceilings, lofts, etc
- solar panels
- ground-source heat pumps (including ancillary supply like ground works)
- air-source heat pumps
- wind turbines
- water turbines
- micro combined heat and power units
- wood-fuelled boilers
The lower rate of VAT applies if the energy saving materials are installed and the work is done on residential accommodation.
Zero Rate Vat also applies to items that are ancillary to the supply of "energy saving materials"
The zero rate applies on 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, piping, system controls and any other installation ancillary to the supply. Because a ground source 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 and this counts as ancillary supply (if part of the same contract). See Heat Emitter Guide.
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 the rate of 0% vat is applied to new builds, but not generally on work done on existing houses.
Zero Rate Vat does not apply to energy saving materials in Northern Ireland
The reduced rate of 5% for installation of energy saving materials 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.