Changes to the way VAT is applied to heat pumps from 1st October

 What changes have been proposed?

VAT currently apply to the installation of the following measures in residential accommodation (including dwellings and buildings used solely for a relevant residential purpose – such as care homes, children’s homes, etc.):

  • ground source heat pumps;
  • air source heat pumps;
  • central heating system controls (including thermostatic radiator valves);
  • hot water system controls;
  • insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings;
  • draught stripping for windows and doors;
  • solar panels;
  • micro combined heat and power units; and
  • boilers designed to be fuelled solely by wood, straw, or similar vegetal matter.


The main change heat pump installers need to be aware of is that in most cases the reduced rate will only remain available in residential accommodation provided that the open market value of the supply of the ESMs does not exceed 60% of the cost (excluding VAT) of the total value of the supply of installing the energy saving materials to the customer. If the value of the energy saving materials exceeds 60%, then only the labour cost element will qualify for the reduced rate (with the supply of the materials standard rated).

The reduced rate will also remain fully available on supplies of services of installing ESMs in residential accommodation that meet the “social policy test”:

  1. to a “qualifying person”, where the residential accommodation is the qualifying person’s sole or main residence (note: a “qualifying person” is defined in legislation as a person who is aged 60 or over, or is in receipt of certain benefits); or
  2. to a “relevant housing association” as defined in legislation; or where the residential accommodation is a building or part of a building used solely for a “relevant residential purpose” as defined in legislation.

The reduced rate of 5% will no longer be available for the installation of wind or water turbines.

For those installations that do not pass the social policy tests, this policy change could make a material difference to the final price paid by the consumer.

When will the change come into effect?

The changes will affect supplies made on or after 1 October 2019 except for supplies paid for before that date or made pursuant to a contract entered into before that date.

Want more information about this?

Read the government’s information page here

Contact us on: