Do energy saving measures in my home attract a lower VAT rate?

February 28 2020

Several energy savings measures are charged at 5% VAT as they are labour intensive to install.  The 5% VAT rate applies to all homeowners where the value of the materials is less than 60% of the total cost of the works.  If that threshold is exceeded, then the builder needs to split their invoice and charge 20% VAT on the materials and 5% VAT on the installation. The following energy saving measures are applicable:

  • Controls for central heating and hot water systems
  • Draught stripping
  • Insulation
  • Solar panels
  • Ground source heat pumps
  • Air source heat pumps
  • Micro combined heat and power units
  • Wood-fuelled boilers

There is no reduced rate for wind or water turbines.

If you are eligible for a grant, then the grant element of the work will be charged at 5% VAT (any required non-grant funded contribution will be at 20%) on the following works:

  • 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

There is no reduced rate of VAT for these works.

We do not provide grants but our Useful Info Page details organisations who may be able to assist you with finding grant funding towards the cost of works in your area.  Sometimes, grant funding only covers part of the cost of works and in this case, if the grant shortfall is £1,000 or over, you can apply for a loan to cover your contribution.

Your builder should only be charging you VAT where they are registered for VAT and have a VAT number (this should be 9 digits long and displayed on their quotes and invoices) If you are not sure if they are registered you can call HMRC on 0300 200 3700.

Please be aware that the following rules apply:

  • If insulation is being fitted as part of a roof being replaced, then 20% VAT has to be charged on the whole job.
  • Central heating would be considered to be at the 20% rate – however parts of it may be 5% if you are receiving grant funding as per above.
  • If you are having an extension built and ask for radiators to be installed in your whole house, then the whole job is subject to 20% VAT. If you ask at a later time for radiators in the rest of the house then the rate would be 5% if there is a grant.

We are not VAT experts and have provided the above information as guidance only, your builder will be able to confirm why they have charged or quoted a certain rate of VAT.

For more information direct from the Government visit https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086#section3

To apply for a loan, or find out more information about our loan scheme, please Contact Us today.

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