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2.6 New rules for installation of energy saving materials in Great Britain
The new rules effective from 1 April 2022 in Great Britain remove both the social conditions test and the 60% test for all installations of qualifying energy-saving materials in England, Scotland and Wales.
They also introduce a temporary zero rate on all installations of qualifying energy-saving materials that are made on or after 1 April 2022 up to and including 31 March 2027.
On 1 April 2027 the installation of qualifying energy-saving materials in Great Britain will revert to the reduced rate of 5%
2.10 Energy-saving materials covered by the zero rate in Great Britain
The zero rate applies to the installation of the following energy-saving materials:
all energy-saving materials as listed in 2.9
2.9 Energy-saving materials covered by the reduced rate in Northern Ireland
Subject to one of the social policy conditions being satisfied or the 60% threshold not being exceeded, the reduced rate applies to the installation of the following energy-saving materials:
- controls for central heating and hot water systems (read paragraph 2.11)
- draught stripping (read paragraph 2.12)
- insulation (read paragraph 2.13)
- solar panels (read paragraph 2.14)
- ground source heat pumps (read paragraph 2.17)
- air source heat pumps (read paragraph 2.18)
- micro combined heat and power units (read paragraph 2.19)
- wood-fuelled boilers (read paragraph 2.20)
2.11 Controls for central heating and hot water systems
Central heating and hot water system controls include:
- manual or electronic timers
- thermostats
- mechanical or electronic valves, including thermostatic radiator valves
2.17 Ground source heat pumps
These transfer energy from the natural heat stored in the earth to heat the home and domestic hot water. They can also be used to augment existing heating systems in the same way as solar panels.
2.18 Air source heat pumps
Air source heat pumps use the air as a source of heat. They absorb heat from the outside or surrounding air and transfer that into useable heat in the home for space or water heating, or both.
Fixed air source heat pumps can be reversed so that they can draw heat from inside a building, thus providing cooling during the summer as well as indoor heating for colder periods of the year.
Only air source heat pumps that are permanently fixed and are not portable or moveable qualify as energy-saving materials.
HMRC’s understanding is that most air conditioning units are air source heat pumps. However, in cases of doubt, deciding whether any particular product is to be treated as an air source heat pump will depend on the facts of each case.
2.19 Micro combined heat and power units
These produce heat and hot water but, in addition, they also generate electricity.
2.20 Wood-fuelled boilers
These are boilers designed to be fuelled solely by wood (including wood chips and pellets), straw or similar vegetal matter.
Some boilers need hoppers to feed the fuel into the boiler. Where a hopper is integral to the installation of the boiler it’s included within the scope of the reduced rate in Northern Ireland and zero rate in Great Britain.
The standard rate applies to installations of ‘multi-fuel’ or ‘dual-fuel’ boilers which are designed to burn other non-renewable fuels such as coal or oil as well as wood. Stand-alone wood-burning stoves are also standard-rated.
The construction or conversion of buildings or extensions for use as log or fuel stores is standard-rated.
2.21 Residential accommodation
The installation of energy-saving materials only qualifies for the reduced rate in Northern Ireland or zero rate in Great Britain if they’re for use in types of residential accommodation, such as:
- houses, blocks of flats or other dwellings
- armed forces residential accommodation
- children’s homes
- homes providing care for the elderly, disabled people, or people who suffer or have suffered from drug or alcohol dependency or mental disorder
- hospices
- institutions that are the sole or main residence of at least 90% of their residents
- monasteries, nunneries and similar religious communities
- residential accommodation for students or pupils
- self-catering holiday accommodation
- caravans used as a place of permanent habitation (such as a park home or static caravans sited on a permanent residential caravan park)
- houseboats that are designed or adapted for permanent habitation and have no means of self-propulsion, or other boats which are used as a person’s sole or main residence, such as canal boats and Dutch barges, on which the boat owner pays Council Tax or domestic rates
The standard rate 20% VAT applies to the installation of energy-saving materials in hospitals, prisons or similar institutions, hotels or inns or similar establishments.
3. Grant-funded installations of heating equipment and security goods so far as not falling within group 23 of schedule 8 VATA94
3.1 Reduced-rated installations
The reduced rate applies to the grant-funded installation of certain heating appliances, central heating and renewable source systems in the sole or main residence of a qualifying person (read paragraph 3.8). The reduced rate applies to the whole of the UK.
This includes the price of the equipment itself.
The reduced rate only applies to the extent that the supply is grant funded (read paragraph 3.9) in so far as the supply does not fall within group 23 of schedule 8 VATA 94.
If you supply heating equipment without installing them your supply is standard-rated, even if it’s grant funded.
No changes were made to the reduced rate for grant funded installations as part of The Value Added Tax (Installation of Energy-Saving Materials) Order 2022.
3.2 Heating appliances
The reduced rate applies to the installation of:
- closed solid fuel fire cassettes
- electric dual immersion water heaters with factory-insulated hot water tanks
- electric storage heaters
- gas-fired boilers
- gas room heaters with thermostatic controls
- oil-fired boilers
- radiators
3.3 Central heating systems
The reduced rate applies to the installation, repair and maintenance of a boiler, radiators, pipework and controls forming a central heating system.
This includes micro combined heat and power systems, which are heating systems that also generate electricity.
The reduced rate includes repairs and replacements of such equipment, whether or not the original system was installed under a relevant grant-funded scheme.
3.4 Renewable source heating systems
The reduced rate applies to the installation, repair and maintenance of renewable source heating systems.
This means space or water heating systems which use energy from:
- renewable sources, including solar, wind and hydroelectric power
- near renewable sources, including ground and air heat
3.5 Security goods
The grant-funded scheme relating to security goods linked to the installation of energy-saving materials or central heating systems has now been withdrawn.
3.6 Connection or reconnection to the mains gas supply
Where a qualifying person has been disconnected from the mains and re-connection is paid for under a grant scheme, that reconnection is eligible for the reduced rate.
3.7 Leasing arrangements
Under some grant-funded schemes, a leasing arrangement may be used to help fund the installation of a central heating system. Where this happens, the installer will install the central heating system as usual, but they’ll sell the boiler and radiators to a leasing company. This supply is standard-rated.
The leasing company, which will then own the goods, will make an annual lease charge to the qualifying person, which will be paid by grant funding. This supply is taxed at the reduced rate.
Where a leasing arrangement is used to help fund the installation of a central heating system there are 2 types of payment that may become due besides the lease charge:
(a) termination fee — this is payable by the qualifying person or their landlord if the qualifying person moves to a new house during the 7-year lease period
(b) end of lease payment — the qualifying person must make a final payment to the lease company at the end of the lease period.
Both of these are further payments for the lease of the equipment and are eligible for the reduced rate.
3.8 A qualifying person
A qualifying person is a person who receives a grant for the installation of heating appliances (read paragraph 3.2) or for the installation, maintenance or repair of a central heating system (read paragraph 3.3) or for a renewable source heating system (read paragraph 3.4) and is either:
(a) aged 60 or over
(b) receives one or more of the following benefits:
- Child Tax Credit (other than the family element)
- Council Tax Benefit
- Disability Living Allowance
- Disablement Pension
- Housing Benefit
- Income-based Jobseeker’s Allowance
- Income Support
- War Disablement Pension
- Working Tax Credit
If there are 2 or more people living in a dwelling, and one person is a qualifying person and the other residents are not, the reduced rate will apply if the supply is to the qualifying person, and they’re eligible for the grant.
In practice, for a supply to be to a qualifying person, that person will have to be responsible for ordering the work to be done.
3.9 Grant-funded schemes
The reduced rate is only available for supplies made under a grant scheme that has an objective of funding the installation of energy-efficiency measures in low income homes.
There’ll usually be no need to look at the formal basis of the grant scheme concerned.
In practice, the explanatory material issued by those who organise schemes will usually make it clear what they will pay for.
If the material published by or about a scheme makes it clear that it funds the installation of energy-savings materials and so on, and it actually operates in line with those commitments, then the scheme can be treated as having the objective outlined.
3.10 Grants covering more than the installation of heating equipment
Grant-funding bodies may make awards to fund the combined cost of the installation of central heating systems, or heating appliances, and other building work, requiring the householder to pay the balance.
If you carry out other work, such as building repairs or maintenance, at the same time, that element of the work is standard-rated.
You must make a fair and reasonable apportionment of the charge made.
3.11 Contributions from householders’ own resources
The reduced rate only applies to work that’s grant funded.
Where installation of central heating systems or heating appliances takes place in a house and the grant does not cover the full cost of the work, householders will make their own contributions.
The installations paid for by these contributions are standard-rated. Where you do work that’s paid for like this, you need to apportion your charge accordingly.
3.12 Contributions from other sources
In addition to grants from the main grant-awarding bodies, and contributions from householders’ own resources, additional grants or contributions may be made by others.
This extra help may come, for example, from local authority hardship funds.
Installations paid for by other supplementary grants or contributions may also come within the scope of the reduced rate, if they meet all the conditions.
Installations paid for by contributions from landlords do not qualify and are standard-rated.