0% VAT for installation of energy saving technology

The Chancellor announced in the Spring Budget that the VAT rate applicable to the installation of energy saving materials and technologies will be reduced to 0%, from 1st April 2022 until 31^st March 2027. After five years the VAT free period will end and the rate will then revert back to 5%.

The VAT zero rating is available to homeowners who install a wide range of specified materials and technologies into their homes such as:

• controls for central heating and hot water systems
• solar panels
• air source heat pumps
• ground source heat pumps
• wood-fuelled boilers
• insulation
• draught stripping
• micro combined heat and power units
• wind and water turbines

As a result of installing these technologies, homes become more energy efficient and therefore reduce energy bills at a time when global energy prices are rising rapidly.

The new rules are welcome as they remove some of the complex conditions which previously applied to the availability of the 5% reduced rate. However, in such cases, the benefit of the VAT reduction to hard pressed households is very small, especially given the rising costs of the materials and technologies themselves.

Whilst the new legislation has simplified what qualifies for the relief, there are still nuances as to what qualifies when the energy saving systems are supplied with other goods or services.

For example, where the installation of energy saving materials is part of a larger overall project, such as the installation of a central heating system to a house, the whole invoice may be subject to the standard rate of VAT of 20% because a central heating system is not on the list of energy saving materials that qualify for zero rating.

Similarly, where ancillary goods are supplied at the same time as the energy saving materials, then these may qualify for the zero-rating if they are provided at the same time and not at a later date. Ancillary goods or services provide a better means of enjoying the main supply, such as cutting a new loft hatch at the same time as installing loft insultation.