VAT – Energy Saving Materials (ESM’s)

Dec 21, 2024

Over the last few years, there has been a host of changes made to the VAT rules in respect of installation of ESM’s. Post Brexit, Great Britain was able to reverse the measures imposed by the CJEU to charge VAT at the reduced rate.

In March 2022, the government at the time announced changes to the VAT liability on the installation of ESM’s. The aim was to simplify the rules and removed the social policy conditions and the 60% test.

From 1 April 2022 until 31 March 2027 the installation of ESM’s is zero rated in residential accommodation and charity buildings, although, this excluded those in Northern Ireland until 1st May 2023.

The relief applies irrespective of a business supplying and installing ESM’s or simply installing ESM’s which the customer has purchased themselves from a 3rd party supplier. However, for those who are supplying goods only, this will be a standard rated supply.

The following ESM’s are covered by the zero rate:

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

From 1 February 2024 additional materials include:

  • Water source heat pumps
  • Batteries for storing energy converted from electricity
  • Smart diverters

As of 1 April 2027, the installation of ESM’s will revert back to the reduce rate of VAT at 5%.

For those supplies not covered by the zero rate, the reduced rate remains for grant funded installations of certain heating appliances, central heating and renewable source systems in the sole or main residence of a qualifying person. A qualifying person is someone who is aged 60 or over, or receives a particular benefit such as Child Tax Credit or DLA. Further guidance can be found in VAT Notice 708/6 section 3.

If you would like more information or advice please contact our VAT Team at Ellacotts on 01295 250401 or email solutions@ellacotts.co.uk. You can also contact us here with your query and we will get back to you.

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

More posts you might like

Contact us

Have a question or need to get in touch?

Our accreditations

We are proud to be recognised as a Top 100 Accountancy firm in the Accountancy Age 2023 survey. We are longstanding and active UK200Group members, and affiliate members of AGN, an international association of accountants. We have One Star Best Companies status, reflecting our commitment to being a great workplace. As a Xero Platinum Partner, we are dedicated to supporting our clients in online accounting.

Read more >

Best Companies logo

Banbury

Countrywide House
23 West Bar Street
Banbury
Oxfordshire
OX16 9SA
T: +44 (0)1295 250401

Birmingham

Cornwall Buildings
45 Newhall Street
Birmingham
B3 3QR
T: +44 (0)121 2894455

Kettering

Vantage House
2700 Kettering Parkway
Kettering Venture Park
Kettering
Northamptonshire
NN15 6XR
T: +44 (0)1536 646000

London

Suite 100
99 Bishopsgate
London
EC2M 3XD
T: +44 (0)20 36937315