Reduced rate VAT – 5% – applies on installation of Ground Source Heat Pumps
Installation of any of the following energy saving materials in residential accommodation qualifies for the lower rate of VAT:
- controls for central heating and hot water systems
- draught insulation (eg around windows and doors)
- insulation on walls, floors, ceilings, lofts, etc
- solar panels
- ground-source heat pumps (including ancillary supply like ground works)
- air-source heat pumps
- wind turbines
- water turbines
- micro combined heat and power units
- wood-fuelled boilers
The lower rate of VAT applies if the energy saving materials are installed and the work is done on residential accommodation.
The lower rate applies on any necessary extra work that needs to be done as part of the installation. For the installation of a ground source heat pump system this includes the heat pump, the ground loop, system controls and any other installation ancillary to the supply. Because a ground source heat pump installation provides heat at a lower temperature than a fossil fuel boiler there will usually be a need to increase the number or size of the radiators as part of the ancillary work or to install underfloor heating. See Heat Emitter Guide.
- the reduced rate does not apply if you buy materials directly: it only applies if you buy an installation (which includes the supply of materials)
- the reduced rate only applies for an installation of these items (including ancillary items) to residential accommodation
- if the installation is part of a wider supply, such as a new extension, then the reduced rate does not apply. This means that the reduced rate will only apply if the installation of energy saving materials is the dominant part of the supply.
- if the installation is in a new building then the supply is zero-rated for VAT.
This pages summarises advice given in HMRC VAT Notice 708/6 Energy-saving materials.
RHI is available on installation of Ground Source Heat Pump Systems
Owners acquiring new GSHP systems are eligible to receive Renewable Heat Incentive for the use of ground source energy and for heat generated by solar thermal systems for domestic hot water.