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13 Aug 2012 11:08:17

Reduced VAT rate of 5% on residential air source heat pumps



Quick, take advantage of the reduced VAT rate of 5% on energy saving materials, which includes air source heat pumps, as this may all change next year!

The reduced VAT for energy saving materials mainly applies to residential applications such as houses, flats or other dwellings. However at this present time the reduced VAT also applies to armed forces residential accommodation, children’s homes, homes providing care for the elderly, disabled or people who suffer drug or alcohol dependency or mental disorder, hospices, school and University residential accommodation, self catering holiday accommodation, permanently sited caravans (7m plus long or 2.3m wide) and permanent residential houseboats (subject to council tax). Charities providing certain social, recreational or residential facilities may quality until April 2013.

How the reduced VAT rate works;
The reduced rate mainly applies to residential properties,
• Equipment and installation costs for a qualifying project must be on the same invoice to benefit from the reduced rate of VAT. Therefore, the contractor will purchase an air source heat pump at the standard rate VAT (20%), but will sell to the qualifying final customer at the reduced rate VAT (5%).

• The ‘input tax’ (VAT paid by the supplier when he made the purchase) will be more than the ‘output tax’ (VAT he charges) and the difference between the two can be reclaimed from Customs and Excise via the normal quarterly VAT return.

If you would like further information please visit; http://www.hmrc.gov.uk/vat/sectors/consumers/energy-saving.htm/ Note: The link relates to the current status only. Space Air will advise when more is announced about VAT changes.


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