Expansion of the VAT zero rate available on the installation of certain energy saving materials

Expansion of the VAT zero rate available on the installation of certain energy saving materials

The VAT relief will cover electrical battery storage, water source heat pumps and diverters retrofitted to energy saving materials such as solar panels and wind turbines.

The rules which will come into force on 1 February 2024 will be in place for three years and will also be extended to installations in buildings used solely for relevant charitable purposes.

In addition, certain groundworks necessary for the installation of ground and water source heat pumps will also qualify for relief. The government already supports the installation of this technology via the boiler upgrade scheme so the extension of the relief ensures this remains in step with broader environmental policies.

For now, wood-fuelled boilers will remain in scope of this VAT relief. However, the government will continue to consider the right VAT treatment for wood-fuelled boilers. This will include undertaking further analysis on the impacts of this technology, bearing in mind concerns about their negative impact on air quality.

‘A construction project carried out by one supplier comprising of multiple different elements is a single supply, and it is a fundamental VAT principle that a single supply carries a single VAT treatment. Implementing this reform could therefore create uncertainty regarding the VAT treatment of all supplies involving multiple components,’ the government stated in the outcome of the consultation.

‘Associated evidence and verification requirements would be significantly more burdensome for consumers to provide and for HMRC to process… given the unprecedented nature of allowing VAT reliefs to be apportioned on this scale, operationalising such a reform would come at a high cost to HMRC – something that would ultimately be borne by the taxpayer.’

This temporary VAT zero rate will be in force until 31 March 2027 when it will revert to a 5% VAT rate, although the government have said it would keep this under review.