When then Chancellor Rishi Sunak made his Spring Statement back in March, one of his standout announcements was the introduction of a 0% rate of VAT for the installation of energy saving materials. This was particularly welcome in the context the cost of living crisis making everyone consider how they might reduce their fuel bills, but there is a danger that it could become a forgotten policy if no-one knows how and when it can be applied.

The first thing to say is that a reduced rate of VAT for energy saving measures is not something completely new. Reduced rates of VAT were introduced into legislation in 1994, initially through the VAT Act, and then later incorporated into the Finance Act 2001. 

The list of energy saving materials written into the legislation includes heating controls, insulation, draught stripping, solar panels, heat pumps, micro-CHP, wood-fuelled boilers, and both wind and water turbines. These reduced rates were 5% originally but will now be 0% for five years; from 1 April 2022 until 31 March 2027. The definition of heating controls in this context includes timers, thermostats, and valves, including thermostatic radiator valves.

The reduction applies to both the materials and their installation, although it is not possible to get the zero rate of VAT if, for example, insulation was purchased from a DIY shop. A customer would have to pay for both the supply and the installation of that insulation to benefit. 

That all sounds positive for any installer who will be able to pass on this discount to customers, but there is one important factor to consider – central heating systems with gas or oil boilers are not included in the reduced rate of VAT, unless as part of a grant funded installation. 

The guidance provided by HMRC around such systems says that “a central heating system may consist of a conventional boiler, radiators, copper pipe, radiator valves, heating controls, and so on. Supplied on their own, they are separate supplies in their own right but, supplied together, they form a single supply of a central heating system. 

“While some components of the central heating system may be zero-rated if supplied and installed on their own, where they are all supplied together, they form part of a single supply of a central heating system. Since a central heating system is not included in the list of energy saving materials eligible for either the zero or the reduced rate, the whole supply is standard-rated.”

In practice, this means that heating controls are not eligible for the reduced rate of VAT when installed as part of a boiler replacement. This has always seemed an unnecessary barrier, particularly when the reduction to 0% has been specifically introduced to help make energy saving measures more affordable to the public. BEAMA will continue to lobby the government for a change in this ruling.

For installers and their customers, the obvious solution is to have a greater focus on the upgrade of heating controls in a home as a standalone measure. Better controls are one of the significant ways that householders can reduce their heating bills and, with further major increases in the price of fuel expected this October, upgrading controls should have a much higher profile as a practical way for the public to make sure they can continue to afford to comfortably heat their home.

Installing effective, modern heating controls is truly a no-regrets option for householders as there will be no further need for upgrades should their boiler subsequently break down. As long as care is taken to make sure that the controls installed comply with Building Regulations requirements for boiler replacements, those in-situ controls will not need to be replaced when the boiler itself is replaced and will therefore lower the overall cost of the replacement. 

Those installers who take advantage of the 0% VAT rate will be able to offer control upgrades at a lower cost than their competitors without impacting on their profit margin.

As well as further reducing the rate of VAT for energy saving materials down to zero, the government has very sensibly removed further complexity around eligibility, which added another barrier for installers, as well as a layer of uncertainty. 

The most recent rules, introduced in October 2019, said that the reduced rate only applied when the installation was grant-funded, or where the occupant was 60 or over, or receiving a qualifying benefit. 

For other installations, installers had to look at what was called “the 60% test”, comparing the cost of the energy saving materials to the total cost of the work. These restrictions no longer apply, even though the guidance on the gov.uk website under VAT Notice 708/6 still refers to them, as they will still apply in Northern Ireland. 

For installers working in the rest of the UK, all homes are now eligible for the 0% VAT rate without any qualifying conditions. Given that there is already a lack of awareness on this subject, having further confusing guidance should really be avoided.

A lack of awareness and a perceived hassle factor may restrict the application of this cost saving to consumers, which would be a shame as there is a very real financial benefit to be gained, both in the initial cost of heating controls and the energy savings they will deliver. Industry can play its part by making sure that we all understand the circumstances in which the rate of 0% VAT can be applied and actively using it to incentivise energy efficiency.

Heating Ventilating & Plumbing (HVP) magazine is the leading plumbing and heating magazine for installers, getting the news to you first and crafting unbeatable journalism to give you the professional edge over your competitors.

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