The UK government has confirmed its intention to expand VAT relief for the installation of qualifying energy-saving materials (ESMs) to cover electrical battery storage, water-source heat pumps and ‘diverters’ retrofitted to ESMs such as solar panels and wind turbines. In its consultation outcome document, HMRC say: ‘Relief will also be extended to the installation of all qualifying ESMs in buildings used solely for a relevant charitable purpose and will continue to apply when these ESMs are installed in residential buildings.
‘A discrete list of groundworks necessary for the installation of certain types of heat pumps will also be brought within scope of the relief, thus allowing all aspects of the installation of ground-source and water-source heat pumps to be relieved of VAT, even those activities that are co-contracted’, HMRC added.
These changes are expected to apply from 1 February 2024.
HMRC also note that temporary zero-rating of installations of ESMs will expire as planned on 31 March 2027 and will revert to the 5% reduced rate at that point. Although, the consultation outcome does suggest that the government may well revisit this decision: ‘However, the government retains its discretion to extend this zero rate ahead of its 2027 sunset date, at a time when the government will have richer data on the impact of this VAT relief and a clearer sense of the post-2027 fiscal picture.’
The UK government has confirmed its intention to expand VAT relief for the installation of qualifying energy-saving materials (ESMs) to cover electrical battery storage, water-source heat pumps and ‘diverters’ retrofitted to ESMs such as solar panels and wind turbines. In its consultation outcome document, HMRC say: ‘Relief will also be extended to the installation of all qualifying ESMs in buildings used solely for a relevant charitable purpose and will continue to apply when these ESMs are installed in residential buildings.
‘A discrete list of groundworks necessary for the installation of certain types of heat pumps will also be brought within scope of the relief, thus allowing all aspects of the installation of ground-source and water-source heat pumps to be relieved of VAT, even those activities that are co-contracted’, HMRC added.
These changes are expected to apply from 1 February 2024.
HMRC also note that temporary zero-rating of installations of ESMs will expire as planned on 31 March 2027 and will revert to the 5% reduced rate at that point. Although, the consultation outcome does suggest that the government may well revisit this decision: ‘However, the government retains its discretion to extend this zero rate ahead of its 2027 sunset date, at a time when the government will have richer data on the impact of this VAT relief and a clearer sense of the post-2027 fiscal picture.’
