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Changes to reduced rate VAT for energy-saving materials

Changes to reduced rate VAT for energy-saving materials

The reduced rate of VAT payable on domestic heat pump installations has been withdrawn by HM Revenue & Customs.

Previously, a 5% VAT rate applied for all Energy-Saving Materials (ESMs) which include both ground and air source heat pumps, but changes have now been made that increase the VAT payable on ESMs to the standard rate of 20%. Labour costs however, still remain at 5%.

The reduced rate will no longer be applicable for domestic heat pump projects unless:

  • All materials supplied cost less than 60% of the entire project cost (the remaining 40% or more must be labour costs)
  • The customer is in receipt of council tax and housing benefit, disablement pension and income support, or is aged over 60 years old

The Government has retrospectively imposed the changes with effect 1st October 2019. Heat pump customers who have signed contracts with Finn Geotherm prior to 1st October will still be invoiced at 5%. Any contracts signed after this date will need to be requoted at the new rates unless the exceptions listed above apply.

We expect the main impact of the VAT changes to be seen on air source heat pump installations. Air source typically takes less time to install than ground source and so the cost of the equipment is typically more than 60% of the total project cost. The VAT change will not affect installations for new builds which are currently zero rated.

We will do our utmost to ensure all quotes using these revised VAT rates are clear and easy to understand. Our team remains on hand to answer any queries customers may have regarding the cost of their installation. Do contact us for more information.

6th November 2019