Following a consultation with industry, the UK government has expanded VAT relief for Energy Saving Measures (ESMs) to include electrical battery storage, water-source heat pumps, and diverters retrofitted to ESMs (e.g., solar panels and wind turbines) in residential properties.
These technologies build on the list of zero-rated ESMs announced in 2022 that already includes insulation and solar panels.
The zero-rated VAT will also be extended to the installation of all qualifying ESMs in buildings used solely for a relevant charitable purpose and will continue to apply when these ESMs are installed in residential buildings.
A list of groundworks necessary for the installation of certain types of heat pumps will also be brought within scope of the relief, allowing all aspects of the installation of ground-source and water-source heat pumps to be relieved of VAT, even those activities that are co-contracted.
The government intends to implement these reforms on 1 February 2024 and will apply across the whole of the United Kingdom. These reforms will also be permanent, meaning that, when the zero rate aspect of this relief sunsets on 31 March 2027, the installation of all technologies in scope of this relief will revert to the reduced rate of VAT at 5%.
Reacting to the news, David Cowdrey, director of external affairs at the MCS Foundation, says: “The introduction of zero-rating for VAT on domestic renewables and energy efficiency measures in March 2022 has been really well received and has contributed to making 2023 a record year for renewable energy installations, including battery storage.
“It is wonderful news that the remaining anomalies in the zero-rating of VAT, that exclude some battery storage installations and work needed for ground source heat pumps, have been addressed. By zero-rating VAT on these products, the Treasury has massively boosted the domestic renewables sector and help households reduce bills and cut carbon with home-grown energy.”
