Heating, water supply, sanitation and drainage installation is inside CIS. And the zero rate on installing energy-saving materials ends on 31 March 2027 — the most time-sensitive VAT date in the trade.
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Find out moreSection 74(2) of the Finance Act 2004 puts the installation in any building or structure of systems of heating, water supply, sanitation, drainage, ventilation and air-conditioning squarely inside the Construction Industry Scheme. Add ordinary repair, alteration and extension work on buildings and structures, and most of what a plumbing and heating business does is CIS-reportable.
What is outside is the manufacture of components for those systems, and their delivery to site. Making and delivering is out; installing is in. For a business that prefabricates anything, the treatment follows what the contract is for.
Whether a job is a construction operation decides two things at once, not one. It decides whether the payment is inside CIS — and because the VAT domestic reverse charge takes its scope from the CIS definition, it decides the VAT treatment on the same invoice. Get the scope question wrong and you get both wrong together.
Installing energy-saving materials in residential accommodation is zero-rated from 1 May 2023 to 31 March 2027. From 1 April 2027 it reverts to the 5% reduced rate. That is a hard cliff edge with a date on it, and it is the single most time-sensitive VAT item facing a heating business.
| Qualifying from the start | Added 1 February 2024 |
|---|---|
| Controls for central heating and hot water systems; draught stripping; insulation; solar panels; wind and water turbines; ground and air source heat pumps; micro combined heat and power units; wood-fuelled boilers | Water source heat pumps; batteries for storing electricity; smart diverters; groundworks for ground or water source heat pump pipework |
Two conditions apply. The relief applies only where the materials are installed — a supply-only sale of a heat pump is standard rated. And from 1 February 2024 the relief also covers buildings used solely for a relevant charitable purpose.
| Work | Rate |
|---|---|
| Constructing a building designed as a dwelling, or for a relevant residential or charitable purpose, in the course of construction | Zero |
| Converting a building so the number of dwellings changes; converting non-residential premises into homes (never used residentially, or not for 10 years or more); renovating a dwelling empty for 2 years or more | 5% |
| Repairs, maintenance, extensions and alterations to an existing occupied dwelling | 20% |
An extension is standard rated even where the work looks like new build. Getting it wrong is expensive in both directions. Note too that zero-rated supplies are outside the reverse charge — so on a new build the reverse charge question does not arise, while on the extension next door it does.
Boilers, cylinders, pipe, fittings and radiators you buy yourself reduce the CIS deduction base, because you directly incurred them. The same items bought by the contractor and recharged to you do not. Travel and subsistence stay inside the base in every case — which on a trade that covers a wide patch is a real number.
If you are paid under CIS, the deductions taken during the year are set against your tax bill and any excess is repaid. The CIS refund estimator gives a rough figure, how much is a CIS tax refund covers what decides it, and what you can claim lists the costs that count. Earlier years can still be claimed within the time limits, and a limited company recovers its deductions through the payroll instead. Keep every payment and deduction statement, because they are the evidence for the claim.
If you are VAT registered, the domestic reverse charge decides whether you charge VAT to a main contractor, and the reverse charge checker works through a single invoice. It also changes whether the Flat Rate Scheme is worth keeping.
Our fees are a fixed monthly amount agreed before we start, with payroll and CIS returns priced separately. For the books, FreeAgent is included with an eligible Mettle business account: see bookkeeping software for trades.
For money to buy a van or plant, or to cover the wait while a contractor pays, Buzz Financial Services runs a funding search for construction firms across a panel of lenders.
Installing systems of heating, water supply, sanitation and drainage in a building or structure is expressly a construction operation, so most plumbing and heating installation is inside CIS, as is repair, alteration and extension work on buildings generally. What is excluded is the manufacture of components for heating, ventilation, drainage, sanitation or water supply systems and their delivery to site — making and delivering is out, installing is in. Sanitary ware you buy and fit is a material you directly incurred, so it comes out of the payment subject to deduction — provided the invoice identifies it.
31 March 2027. Installing energy-saving materials in residential accommodation has been zero-rated since 1 May 2023, and from 1 April 2027 it reverts to the 5% reduced rate. That is a hard, dated cliff edge and it is the most time-sensitive VAT item in the trade. Allow for it when you quote work that will be installed either side of it. Batteries for storing electricity, smart diverters and groundworks for heat pump pipework were added to the qualifying list on 1 February 2024, so the relief now covers more of a heating job than it did.
Controls for central heating and hot water systems, draught stripping, insulation, solar panels, wind turbines, water turbines, ground source heat pumps, air source heat pumps, micro combined heat and power units and wood-fuelled boilers. Added on 1 February 2024: water source heat pumps, batteries for storing electricity, smart diverters, and groundworks for ground or water source heat pump pipework. From the same date the relief also covers buildings used solely for a relevant charitable purpose. Crucially, the relief applies only where the materials are installed — supply-only is standard rated.
Yes. Constructing a building designed as a dwelling is zero-rated where the conditions are met. Repairs, maintenance, extensions and alterations to an existing occupied dwelling are standard rated at 20%. So the same bathroom is zero-rated in a new house and standard rated in an extension to an existing one. And since zero-rated supplies are outside the reverse charge, the two answers diverge on more than just the rate. The four “designed as a dwelling” conditions decide the zero rate. One of them is that there is no prohibition on separate use or disposal. Planning consent for an annexe can impose that prohibition, and the annexe then fails the condition.
We act for trade businesses everywhere in the UK and work with you remotely, so your postcode does not decide whether we can help. Your CIS and VAT position does not change when you cross a border either — but the building safety rules and the levy do, which is what the area pages cover.
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