Reduced rate VAT – 5% – applies on installation of Ground Source Heat Pumps
The reduced rate will remain fully available (except on wind and water turbines) after 1 October 2019 for supplies of services of installing "energy saving materials" in residential accommodation where the supply is made to a qualifying person (a person who is aged 60 or over or is in receipt of certain benefits), a relevant housing association or where the residential accommodation is a building or part of a building used solely for a relevant residential purpose.
Otherwise, the reduced rate will be available (except on wind and water turbines) provided that the value of the "energy saving materials" does not exceed 60% of the total value of the supply of installing the "energy saving materials". If the value of the "energy saving materials" exceeds 60%, then only the labour cost element will qualify for the reduced rate (with the supply of the materials being standard rated).
Installation of any of the following energy saving materials in residential accommodation qualifies (subject to the paragraphs above) 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 – this will not apply to wind turbines supplied after 1 October 2019
- water turbines – this will not apply to water turbines supplied after 1 October 2019
- 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 generally provides heat at a lower temperature than a fossil fuel boiler there may 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 page 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.