Builders can now install certain energy efficiency products in homes and charge 0% VAT to customers, thanks to an announcement made by the Government at the Spring Statement in March. The scheme began on 1 April 2022.
The information below covers the scheme in the Great Britain. For those working in Northern Ireland the list of qualifying goods and rate of VAT due on installations will remain unchanged.
What products are covered?
The following products are covered under this scheme:
- 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
- Wind turbines
- Water turbines
What process is covered?
The 0% VAT applies to the aforementioned energy efficiency products, For exact details on each product read the information on Energy-saving materials and heating equipment (VAT Notice 708/6) on the GOV.UK website before committing to a job. The measures cover both the installation and product, and they need to be done together to benefit from the 0% rate.
If someone was to buy from a merchant and do the work themselves then this won’t be covered and be subject to the standard rate of tax. The installation of the specified products is covered up until 31 March 2027. After this point, having these products installed will revert to a reduced rate of 5% VAT.
Work at the 0% rate also covers some extras. If work is done in aid of energy efficiency materials being installed, such as having a new loft hatch fitted to reach the roof, or new radiators installed with a heat pump, this is also covered.
What’s not covered?
The primary bulk of the work must be centred around the installation of the listed products. For example, if a customer has insulation fitted and a completely new roof put on, then it’s the usual rate of tax. Building an extension with energy efficiency materials would also not be zero rated, as the installation of the products is not the sole purpose of the work.
Why is this important?
We know that VAT costs put off roughly 4 million households a year from improving their homes. Installing energy efficiency measures isn’t cheap, but with 0% VAT, customers will be able to make substantial savings. We also know that when VAT is reduced to just 5% on RMI labour it will create around 345,000 jobs. While the scheme isn’t that extensive, it has the ability to create more work for members.
What will this scheme do?
This should mean that some customers take up more work as a result, especially if they were on the fence about having work done. This is because they could make substantial savings, especially on larger projects. It would be worth noting this discount if you have any enquiries about this sort of work. But remember, it must be related to the installation of the energy efficiency products and directly related work, a discount can’t be applied as part of a larger job.
What’s the FMB been doing?
The Federation of Master Builders has campaigned extensively to lower the rate of VAT to boost the workloads of builders, and as part of wider plans to improve energy inefficient homes, through a National Retrofit Strategy. While the VAT cut is a step in the right direction, we would have liked to have seen the Government commit to more extensive plans, especially introducing a reduced rate on VAT on all RMI work.
While this is a welcome step forward, more needs to be done to properly instigate a retrofit revolution. This will be vital for the country to hit net zero targets and help drop energy bills, something especially important during the ongoing cost of living crises.
At the FMB, we’ll continue to push for a fully-fledged National Retrofit Strategy and will strive to bolster the market through the introduction of reduced VAT on all RMI work. You can follow our work on our Campaign pages.
Watch: Zero VAT on energy efficiency installations
In this member-only webinar, we break down the rules of the new scheme for zero VAT on energy efficiency installations, and what it all means for small builders.
Further information
Full details of this scheme can be found on the GOV.UK website.
If you need help with this scheme you contact the GOV.UK VAT helpline.
Contact the FMB with any queries at [email protected]
