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What goods have now been added to the eligibility of zero rate? Our VAT team explains the legislative changes in more detail.
The supply and installation of certain energy-efficient products in residential properties has long been subject to the reduced rate of VAT. Various products have been added to the reduced rate as technology has advanced. The scope of the relief was narrowed in 2013 when the European Commission ruled that the UK’s reduced rate in respect to buildings used for charitable purposes was not allowed in EU law.
Following legislative changes, installations of energy-saving materials made between 1 April 2022 and 31 March 2027 are subject to the zero rate of VAT.
It is important to remember that in order to qualify, the supply must include the installation of goods. A supply of installation only will be zero-rated and thus too will the goods if they are supplied by the same person at the same time. However, a supply of goods only will remain liable to the standard rate of VAT.
To be eligible, goods must be installed in the curtilage of residential accommodation and from 1 February 2024, charitable buildings. This includes dwellings and other ‘relevant residential purpose’ buildings such as care homes.
What goods are currently eligible?
Eligible goods from 1 April 2022:
- Controls for central heating and hot water systems
- Draught stripping
- Insulation
- Solar panels
- Wind turbines
- Water turbines
- Ground source heat pumps
- Air source heat pumps
- Micro combined heat and power units, and
- Wood-fuelled boilers
From 1 February 2024 the following goods were added:
- Water source heat pumps
- Batteries for storing energy converted from electricity
- Smart diverters, and
- Groundworks, or the dredging a body of water, in order to install pipework or other equipment necessary for the operation of a ground or water source heat pump
Work required to ‘make good’ damage caused by or to ‘facilitate’ a supply of energy saving materials may be treated as a single supply covered by the zero rate, if it is done at the same time as the installation. HMRC provides an example of having a new loft hatch fitted to reach the roof when installing insulation.
The relief for energy-saving materials applies to installations in residential accommodation. This includes dwellings as well as residential caravans/houseboats and relevant residential purpose buildings such as children’s homes, student accommodation, etc.
As above, the relief is extended from 1 February 2024 to include charitable buildings that are used solely (95%) for a ‘relevant charitable purpose’. A relevant charitable purpose is defined as use otherwise than in the course or furtherance of a business, or as a village hall or similarly in providing social or recreational facilities for a local community.
From 1 April 2027 onwards it is intended that the supply and installation of all energy saving materials will revert to the reduced rate of VAT of 5%.
For more VAT advice contact our VAT specialist team on 0330 058 6559 or email hello@scruttonbland.co.uk
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