The supply and fitting of energy-saving materials in residential accommodation attracts the zero rate of VAT. What does it apply to? What are the qualifying conditions? What case law is there on this topic?

A guide for subscribers.

At a glance

The goods and services that this guide applies to are:

Group 23 of Schedule 8 VATA 1994

  • Group 23 covers Energy-Saving Materials (ESMs). These were previously in Group 2 of Schedule 7A VATA 1994. 
    • These items are currently zero-rated for installations in Great Britain (GB):
      • This applies for a limited time: 1 April 2022 to 31 March 2027. After this point, the rate will return to the reduced rate of 5%.
      • From 1 April 2022, the eligibility criteria required for supplies of ESMs and installation services were removed. The social policy conditions and 60% test were abolished.
      • The ESM list was expanded to include wind and water turbines from 1 April 2022. 
      • There were further extensions to the relief from 1 February 2024. See What's new?, below. 
    • For installations in Northern Ireland, the previous rules continued to apply until 30 April 2023. From 1 May 2023 to 31 March 2027, the temporary zero-rating for ESMs was extended to cover Northern Ireland, the previous eligibility criteria were removed and wind and water turbines were added. 
      • As with GB, there were further extensions to the relief from 1 February 2024. See What's new?, below. 

Group 3 of Schedule 7A VATA 1994:

  • Group 3 covers the grant-funded installation of heating equipment or security goods or connection of gas supply.
    • These items are subject to the reduced rate of 5%.

This note works through the VAT legislation and adds observations and case law.

It is important to consider whether other goods and services are being provided at the same time as the installation of ESMs as, if they are, it is necessary to determine whether they constitute a single supply subject to one VAT rate, or multiple supplies which may be subject to different rates of VAT. 

For example: 

  • A trader is contracted to build a domestic extension. As part of the same contract, they are required to fit thermostatic valves to all the radiators in the house. This is a single standard-rated supply of construction services.
  • Contrast this to a trader who has a contract to build an extension (standard rated) and sometime after the work has commenced, the homeowner separately asks them to install thermostatic valves. This supply of thermostatic valves is a single supply that qualifies for ESM relief.

See Mixed supplies: Single or Multiple supply?

What's new?

Autumn Statement 2023

From 1 February 2024, ESMs VAT relief was extended to include: 

  • The installation of ESMs in buildings used solely for a Relevant charitable purpose, such as village halls or similar recreational facilities for a local community. 
  • Electrical battery storage (either retrofitted to a qualifying ESM or installed as a standalone technology connected to the National Grid).
  • Water-source heat pumps.
  • Smart diverters retrofitted to ESMs such as solar panels and wind turbines that enable excess electricity to be used within a building in which it is generated rather than exported to the National Grid.
  • Groundworks, or dredging a body of water, to install pipework or other equipment necessary for the operation of a ground or water source heat pump.

These items qualify for the temporary zero rates until 31 March 2027 after which they will be reduced-rated.