More energy saving materials qualify for zero rate VAT

More energy saving materials qualify for zero rate VAT

Dec 13, 2023

The government plans to expand 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 will come into force from 1 February 2024 and will be in place for three years.

The measure 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 will help to ensure that tax policy remains in step with broader environmental policy.

Calls for tax relief on thermal storage were rejected as the government said this technology did not meet the three objectives of the relief as there was not sufficient independent data available about thermal efficiency.

However, when installed at the same time as a qualifying energy saving material, the installation of thermal storage will continue to be zero rated for VAT purposes, as the technology is ancillary to a qualifying supply.

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.

The government ruled out changes to allow tax relief to be claimed on an apportioned basis when an energy saving material is installed as part of a wider construction project, such as a house refurbishment.

‘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 is a temporary VAT zero rate and will be in force until 31 March 2027 when it will revert to a 5% VAT rate. The government said it would keep this under review.