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Tax relief extended for zero-rated energy-saving materials

| Christine Newitt | 20 February 2024

As of 1 February 2024, zero-rated VAT relief for the installation of energy-saving materials (EMS) has been extended to include a broader range of measures.

The move, which will benefit residential properties as well as some buildings used by charities, is intended to incentivise the uptake of energy-efficient materials in homes to minimise energy consumption and heat loss.

As well as benefiting homeowners, charities, and other owners of residential property seeking to improve the energy efficiency of their properties, it will also benefit businesses that install ESMs as they will not need to charge VAT or account for it for the duration of the new zero-rated VAT rules until the initiative ends on 31 March 2027.

Retrofitting buildings with electrical battery storage

Under the current legislation, electrical batteries that store electricity generated by approved ESMs and the National Grid qualify for VAT at the zero-rated price if (and only if) they are actively installed with a qualifying energy-saving materials system. The impending extension will allow the same zero-rated cost to be applied to retrofitting an existing electrical installation to include battery storage.

The new rules will also benefit those who wish to install a standalone electrical battery storage system (i.e. one that doesn’t interact with any other ESM systems, such as solar panels) as this too will fall under the zero-rating.

Water-source heat pumps and diverters

Water-source heat pumps are increasingly energy efficient as they do not generate energy but instead use electrical energy to harness it, removing it from bodies of water and converting it into useful energy to heat your home.

This range of technology will now benefit from VAT-free installation costs in both residential properties as well as buildings that are only used for charitable purposes. For example, the premises of an established charity which does not share the property with any other residential or commercial spaces. Another property that would benefit from this reduced tax rate would be community spaces, such as a village hall.

Other technologies that will fall under the reformed rules include diverters which are retrofitted to existing energy-saving materials, such as solar panels or wind turbines. Energy diverters essentially work by moving electricity from where it is not being actively used into another source, such as an appliance with a heavier voltage requirement or a storage battery.

Groundworks for heat pump installations

The government recognises that preparatory groundworks must be undertaken in order to successfully install a heat pump, so the new measures will also apply to any measures deemed necessary to complete the initial groundwork for both ground and water-source heat pumps.

Zero-rated VAT costs are only temporary

Homeowners, residential landlords, businesses providing residential-type accommodation (self-catering holiday homes, nursing homes, and hospices) and charities wanting to capitalise on the reduced VAT costs as well as businesses seeking to increase uptake are advised to take advantage of the VAT-free period, as it is only a temporary reduction.

It will last no longer than three years, with the legislation expiring on 31 March 2027. After this time, installation costs will revert to the 5% VAT rating.

For more information about the impending changes to VAT relief for the installation of energy-saving materials, explore the government’s Policy Paper in full. Alternatively, get in touch with our team of experts today for a clear and concise breakdown of how you can maximise the energy efficiency of your property while minimising outgoings.


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