The Government has extended the VAT zero rate to a wider range of energy-saving materials. It is a welcome move for those wishing to buy and install battery storage, heat pumps groundworks and for charities.
The Government first announced the extension of the VAT zero rate to key energy-saving materials in its Spring 2023 Budget. Following an extensive consultation, the Government confirmed that from 1 February 2024 the zero rate of VAT will now apply.
The installation of certain energy-saving materials (ESMs) in residential accommodation has long enjoyed a zero VAT rate. This preferential VAT rate applied to the more common ESMs including:
- Controls for central heating;
- Draught-proof stripping;
- Insulation;
- Solar panels;
- Ground and air-source heat pumps;
- Micro combined heat/power units and wood-fuelled boilers; and
- Wind and water turbines.
But in recognition of the considerable pace of change in energy-saving technology the following ESMs now benefits from the zero rate of VAT:
- Batteries;
- Water-source heat pumps;
- Diverters retrofitted to existing ESMs, such as solar panel or wind turbine systems; and
- Heat pump groundworks that are integral to the installation of a ground-source heat pump.
Batteries already qualify for the VAT zero rate when installed alongside a qualifying ESM. Now, the zero rate will apply to battery storage when retrofitted to a qualifying ESG and as a standalone technology if connected to the grid.
The extension of the zero rate relief to groundworks recognises that the whole installation process is integral to heat pumps. However, the zero rate will apply to a tightly defined type of groundwork to be announced in legislation.
Charities
Charities until 2013 had been able to qualify for zero-rated VAT on the installation of ESMs in a building intended for the use of charitable non-business activity. That relief has now been reinstated.
What is or is not ‘charitable non-business activity’ can be difficult to determine, but village halls, for example, or similar are often capable of attracting the relief. The installation of ESMs may require ancillary works and these can also be zero-rated.
Sunset clause
This extension of the VAT zero rate to ESMs is not, however, a permanent one. It will end on 31 March 2027, reverting to the reduced rate of 5%.
The rules are complex and specialist advice should always be taken.
Contact our expert below for further information.
