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Which energy saving measures qualify for lower VAT rates?

Posted by Colin Lothian on 1 March 2013 at 9:12 am

Q. I have had an air pump system installed by Ice Energy, very helpful and efficient company. However, to meet the radiator specifications I had to change all my radiators for larger ones. Ice Energy do not supply radiators so I had to buy locally. This did not qualify for the reduced VAT for energy saving materials, so have paid out over £500 in VAT and can apparently not recoup this outlay. I am wondering if this topic has been explored and whether there is any solution? 

A. According to the HMRC, Installation of any of the following qualifies for the lower rate of VAT:

• Controls for central heating and hot water systems

• Draught insulation (e.g. around windows and doors)

• Insulation on walls, floors, ceilings, lofts, etc

• Solar panels

• Wind turbines

• Water turbines

• Ground-source heat pumps

• Air-source heat pumps

• Micro combined heat and power units

• Wood-fuelled boilers

You can only get these lower rates if the energy saving materials are actually installed, and the work is done on your home. You'll be charged the lower rate on the installation work itself as well as the materials.

You'll also get the lower rate on any necessary extra work that needs to be done as part of the installation - this doesn't apply if you're having them installed as part of a larger project such as building a new roof or an extension, or installing a central heating system.

Which energy sabing measures do NOT qualify for reduced VAT rate?

You can't get the lower rate of VAT on all energy saving materials and equipment. The following aren't covered by the scheme:

• Energy efficient boilers

• Secondary or double glazing

• Low emission glass

• Energy efficient fridge freezers

• Materials and equipment that you buy without having them installed

However, you may be able to get a grant towards the cost of installing energy saving equipment, some of which then becomes eligible for the lower rate of VAT. See HMRC notice 708/6 please.

The only solution would seem to be for the installer to have purchased the radiators as part and parcel of the initial installation of energy saving qualifying installations as shown above.

About the author: Colin, a Chartered Tax Adviser and works at The Fry Group as Business Tax Manager. 

If you have a question about anything in the above blog, please ask it in the comments section below.

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2 comments - read them below or add one

Sims Solar Ltd

Sims Solar LtdComment left on: 2 March 2013 at 6:18 am

One option would have been for ICE Energy to have subcontracted the work of installing radiators out and then you would have been charged VAT @ reduced rate. Whether any mark-up made by ICE Energy on subcontracting out the work would have saved you money overall is another question.

The installation of oversize radiators is a necessary task with heat pumps connected to existing wet radiator systems- hence reduced rated.

As an aside and going back to devices such as Immersun and Intellipower, I still have not seen any definiive evidence that these devices can be installed under the reduced VAT rules. They are not neceassary as part of a microgeneration install,, arguably just a nice to have. Colin do you have any views on this subject.

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Jules R

Jules RComment left on: 1 March 2013 at 11:23 am

Installing a biomass with the help of a carbon trust loan the firm are saying I need to pay 20% VAt - bec ause its a business...well we are a business but we also live here. The biomass will be heating a small barn building which will be for selfcatering as well the main house. This barn will have underfloor heating which they tell me is  zero rated.   Are they right about all this?

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