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VAT cut on energy efficient materials- Spring Statement 2022

With effect from 1st April 2022, the Government have implemented temporary measures to zero-rate VAT applicable on the installation of qualifying energy-saving materials and heating equipment. 

The changes were announced in the Chancellor’s Spring budget, in a move set to financially incentivise energy efficiency in homes, amid the rising cost of energy prices and ‘green’ targets across the property sector.

Previously, the reduced rate of VAT could only be applied to the installation of energy-saving materials where one of three social policy conditions could be met, or a test was passed to calculate that the purchase price of materials made up no more than 60% of the total supply for installation works.

These conditions have now been permanently scrapped in a move that reverses ruling previously applicable to the UK under EU membership.

The zero rating of VAT will apply to all installations of qualifying materials and equipment in England, Scotland and Wales until 31 March 2027, when thereafter, this will revert to 5% reduced rate. 

Qualifying energy-saving materials and heating equipment include:

  • Controls for central heating and hot water systems
  • Manual or electronic timers, thermostats and mechanical or electronic valves
  • Draught stripping 
  • Insulation 
  • Walls, floors, ceilings, roofs or lofts, water tanks, pipes or other plumbing fittings
  • The rate does not apply to products such as curtains and carpets which are not usually installed simply as insulation.
  • Solar panels 
  • Wind turbines 
  • Water turbines
  • Ground source heat pumps 
  • Air source heat pumps 
  • Micro combined heat and power units 
  • Wood-fuelled boilers

 

The VAT rate reduction is applicable to installations made in most types of residential accommodation; including student accommodation, care homes and self-catering holiday lets, but does not apply to institutions such as hospitals and prisons or commercial establishments such as hotels and B&Bs. The zero rate of VAT will continue to apply to installations made in new dwellings.

Where you require further advice or information on these measures and how they should be applied to your projects, please do not hesitate to get in touch with our Indirect Tax team via the form below.

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