VAT – changes to energy-saving materials

To support the UK's net-zero goals, the government has expanded the list of energy-saving materials (ESMs) that qualify for a 0% VAT rate when installed in residential accommodation in Great Britain.

This includes items like solar panels, heat pumps, and insulation. The relief, which was originally set to end in 2027, has also been extended to include certain water-source heat pumps and batteries for storing solar energy.

What qualifies for the zero rate?

The 0% rate applies to the installation of qualifying ESMs. This includes the cost of the materials themselves and the labour required to install them. Qualifying materials include draught stripping, insulation (for walls, floors, ceilings, and lofts), solar panels, ground-source and air-source heat pumps, micro-combined heat and power units, and wood-fuelled boilers.

The inclusion of battery storage

A significant recent change was the inclusion of electrical battery storage systems. Previously, batteries only qualified for the zero rate if they were installed at exactly the same time as a solar panel system. Now, batteries installed as a standalone project, or retrofitted to an existing solar array, also qualify for 0% VAT, making it much cheaper for homeowners to store the energy they generate.

Implications for installers

For businesses that install these materials, the rules simplify VAT accounting. You do not need to charge VAT to your residential customers on qualifying installations, making your quotes more competitive. However, you can still reclaim the VAT you incur on purchasing the materials from your suppliers, resulting in a positive cash flow position. It is vital to ensure that the primary purpose of the contract is the installation of the ESM, rather than general building work.