In the 2022 Spring Statement, the Chancellor announced changes to the VAT on Energy Saving Materials (ESM). They removed the tax on ESM installation for five years, helping domestic consumers upgrade their homes for less.
In this guide, we will break down the new policy, explain what it means and the types of installations included so that you know where you can benefit.
What Does 0% VAT on ESM Installations Mean?
VAT (Value Added Tax) applies to every business-to-customer transaction. Currently, businesses charge 20% extra for their products and services and then pay this 20% to the government as tax.
However, to incentivise domestic consumers to purchase energy-saving materials, the VAT on these transactions was historically 5%, reducing the price for customers without harming the business’s profits.
The changes in the 2022 Spring Statement announced that this 5% VAT will be waived to 0% on qualifying installations between the 1st of April 2022 and the 31st of March 2027. From the 1st of March 2027, the rate will return to 5%.
What Premises Qualify for 0% VAT?
The new 0% rate applies to ESM installations in residential accommodations or the surrounding land. These properties include:
- Houses, flats or other dwellings
- Children’s homes
- Care Homes – either for the elderly, disabled people or those suffering from addiction or mental illness
- Armed Forces residential accommodation
- Student and pupil residential accommodation
- Hospices
- Self-catering accommodation
- Religious communities
- Caravans used as permanent accommodation
- Houseboats are used as permanent accommodation where the owner pays domestic rates and council tax
- Institutions that are the sole or primary residence for a minimum of 90% of their residents
The new rate does not apply to hotels, inns, or any other similar establishment. It also does not apply to hospitals, prisons or similar institutions. Just to be clear, the 0% VAT is an incentive for domestic customers only.
What Installations Does the 0% Rate Apply to?
The relief applies to EMS installations and covers any ancillary services involved. If you buy ESMs without installation, the purchase does not qualify for relief and 20% VAT is included. However, you can contract someone to install this device and pay 0% VAT for their service.
It also only applies to ESM installations where the materials are permanently fitted.
ESMs that Qualify for a Reduced Rate
The policy encourages you to install products that save energy within residential premises to limit your impact on the environment. You will not pay VAT on the installation of:
Insulation
Insulation includes any material installed for its insulating properties and values. It defines unrolling and positioning insulation as permanent fitting.
However, the new scheme does not include products installed for reasons other than their insulating properties, like carpets or curtains.
It covers insulation for:
- Walls
- Ceilings
- Floors
- Lofts or roofs
- Water tanks, pipes or plumbing
Controls for Heating and Water Systems
Installing manual and electronic timers, thermostats or valves is covered by the scheme.
Solar Panels
The photovoltaic panels, cabling, AC/DC inverters, control panels, any solar collector like an evacuated tube or flat plate system and the associated equipment, such as pipework, are all VAT-free.
Water Turbines
You will not pay VAT on any of the equipment necessary for the turbine’s operation, including cabling, voltage controllers and battery banks.
Wind Turbines
Every essential part of the wind turbine’s operation qualifies for the scheme, including the cables and mounting poles.
Air Source Heat Pumps
Air source heat pumps draw heat from the air and use it to heat your home or water. The new VAT policy covers the installation of permanently fixed heat pumps.
As you can reverse a heat pump to draw and expel heat from your home, the new plan includes any air conditioning unit that is also an air source heat pump.
Ground Source Heat Pumps
These heat pumps can warm your home or water by drawing heat from underground.
Wood-Fuelled Boiler
The scheme covers the installation of boilers fuelled by wood, straw or other natural, vegetal matter. It does not include ‘dual’ or ‘multi-fuel’ burners that use non-renewable fuel alongside vegetal sources.
If a hopper is required to supply the boiler, its installation qualifies for 0% VAT under the policy. Any construction or conversion of buildings to store fuel is also covered.
Draught Stripping
Strips around your windows, doors and hatches to prevent draughts are covered.
Micro Combined Heat and Power Units
These devices can heat your home and water and generate electricity.
Complicated Examples of Qualifying Installations
Knowing what job in an ancillary service can be complex. If you are looking to install ESMs as part of a larger renovation or extension, the VAT liability of the main project will override the relief for the ESMs.
Here are some situations where the relief may be questioned:
You want to install loft insulation but need to cut a hatch in the ceiling to use the loft
Cutting the hatch in the ceiling for access to the loft supports the insulation installation. Therefore, it is an ancillary service and is covered.
If you were to replace the loft, the installation is ancillary as it helps you enjoy the new loft. In this case, the standard rate applies to the whole job.
You want to install a new central heating system and some of the elements are covered by the scheme
Whilst your central heating system consists of a boiler, radiators, piping, valves and controls that may qualify, if they are all supplied together, they are a system. The scheme does not cover central heating systems so you will pay the standard rate.
You are having an extension built, and want to add thermostatic values afterwards
It all depends on the contract. If the valves are installed as part of the extension contract, they are an ancillary service and do not qualify for the 0% rate. However, if you request the valve installation after completing the extension, it is a separate supply and qualifies.
Get Your Air Conditioning Unit VAT-Free
With this new policy, domestic customers can receive an installation of any heat pump air conditioning unit without the additional VAT. Meaning that you can save 5%. We have residential air conditioners from top brands like Panasonic, Toshiba and Fujitsu, and our team of qualified engineers can install them at a time that suits you.
If you would like more information about our services or a free home air conditioning installation fee estimate, contact our friendly team. We can recommend the best units for your premises.