Changes to VAT zero rating imminent

Published: 18th December 2023

The government often uses tax policy to encourage the use of energy efficient/otherwise environmentally friendly technologies. Currently, the purchase of certain energy-saving materials (ESM) is zero rated for VAT until 31 March 2027, at which point it is due to revert to the reduced VAT rate of 5%. Following a consultation, the list of materials qualifying for the zero rate has been extended to include the following from 1 February 2024:

• Electrical battery storage that is retrofitted to a qualifying ESM (currently this is only available if the battery is fitted at the same time as the ESM).
• Installation of electrical battery storage as a standalone technology connected to the grid.
• Water-source heat pumps; and
• Diverters retrofitted to ESMs such as solar panels and wind turbines.

The zero rate will also apply to the installation of some groundworks that are required for the installation of heat pumps. These works will be specifically defined in the legislation.

Further information on the outcome of the consultation can be found here.