How the reduced VAT rate works on Energy Saving Materials

Reduced VAT rate of 5% on residential Air Source Heat Pumps:

Who qualifies for the reduced VAT?

Reduced VAT rate applies on Energy Saving Materials for certain residential applications;

• Houses, flats or other dwellings
• Armed forces residential accommodation
• Children’s homes
• Care homes for elderly, disabled or people who suffer drug or alcohol dependency or mental disorder
• Hospices
• School and University residential accommodation
• Self catering holiday accommodation
• Permanently sited caravans (7m plus long or 2.3m wide)
• Permanent residential houseboats (subject to council tax)

How the reduced VAT rate works:

• The reduced rate mainly applies to residential properties
• Equipment and installation costs for a qualifying project must be on the same invoice to benefit from the reduced rate of VAT. Therefore, the contractor will purchase an Air Source Heat Pump at the standard rate VAT (20%), but will sell to the qualifying final customer at the reduced rate VAT (5%)

• The ‘input tax’ (VAT paid by the supplier when he made the purchase) will be more than
the ‘output tax’ (VAT he charges) and the difference between the two can be reclaimed
from Customs and Excise via the normal quarterly VAT return