The installation of energy-saving materials in residential accommodation has been zero-rated since 1 May 2023. On 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 facing the trades — because any contract being signed now for a spring 2027 installation straddles it, and somebody has to carry the five points if the programme slips.
Article · 13 April 2026
| Period | VAT on installation in residential accommodation |
|---|---|
| 1 May 2023 to 31 March 2027 | Zero-rated |
| From 1 April 2027 | 5% reduced rate |
It is not a proposal or a consultation. It is a dated reversion, and the relief simply stops.
The qualifying list, from VAT Notice 708/6:
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.
The battery and groundworks additions matter commercially. Battery storage sold alongside solar was previously outside the relief; the groundworks addition means the digging for a ground source loop is inside it, which for a heat pump installer is a substantial part of the contract value.
The relief applies only where the materials are installed. Supply-only is standard rated.
So a business that both fits and sells over the counter has two VAT treatments on the same product. Fit a heat pump: zero-rated to 31 March 2027. Sell the same heat pump to a customer who will fit it themselves, or to another installer: 20%. If your invoicing does not distinguish the two, that is worth fixing before it becomes an assessment.
An installer signs a contract in autumn 2026 for an air source heat pump installation with a contract value of £14,000, priced and quoted with no VAT on the basis of the zero rate.
£700 is not ruinous. The question is who pays it, and the answer is whoever the contract says — and most contracts written now say nothing, because the person writing them has not thought about the date. In a straight fixed-price contract with no VAT clause, the installer absorbs it.
Across a book of twenty heat pump installations slipping into April 2027, that is £14,000 of margin gone on a technicality about scheduling.
What to put in contracts you are signing now for spring 2027 delivery:
Programme risk is also worth pricing honestly. If a job is scheduled for March 2027 and slips by a fortnight, the rate changes. Building a fortnight of contingency into the schedule is cheaper than arguing about £700.
Energy-saving materials are one of several ways a trade can end up on something other than 20%. Getting the rest right matters just as much:
The VAT rates guide covers all of them with the evidence each one needs. And remember the sequencing: only standard and reduced-rated supplies can go onto the domestic reverse charge, so a rate decision is also a reverse charge decision.
What has changed on CIS and the reverse charge, the dates coming up, and one number worth checking on your own jobs. No spam, unsubscribe any time.
On 31 March 2027. The installation of 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. This is a hard dated reversion rather than a proposal, which makes it the most time-sensitive VAT item facing the trades: any contract signed now for a spring 2027 installation straddles the date, and if the programme slips past 31 March the rate changes mid-job. Contracts being written now should say which rate has been applied and what happens if the tax point falls on or after 1 April 2027.
Yes, both were added on 1 February 2024. The qualifying list now includes batteries for storing electricity, smart diverters, water source heat pumps, and groundworks for ground or water source heat pump pipework, alongside the original items — insulation, draught stripping, central heating and hot water controls, solar panels, wind and water turbines, ground and air source heat pumps, micro combined heat and power units and wood-fuelled boilers. From the same date the relief also covers buildings used solely for a relevant charitable purpose. The groundworks addition is commercially significant for heat pump installers because the loop excavation is a large part of contract value.
No. The relief applies only where the materials are installed, so supply-only sales are standard rated at 20%. That means a business which both fits and sells over the counter has two different VAT treatments for the same product: zero-rated when it forms part of an installation in residential accommodation up to 31 March 2027, and 20% when sold to a customer who will fit it themselves or to another installer. If your invoicing does not distinguish the two, it is worth separating them before an inspection does it for you.
Whoever the contract says, and most contracts being written now say nothing — in which case a fixed-price installer absorbs it. On a £14,000 installation quoted with no VAT on the basis of the zero rate, a tax point falling on or after 1 April 2027 brings 5% into play, so £700. Across twenty installations slipping past the date that is £14,000 of margin lost to scheduling. The fix is a clause stating the rate applied, the basis for it, and that the price is exclusive of the 5% reduced rate if the tax point falls after 31 March 2027 — plus a fortnight of programme contingency.
A free, no-obligation call about your CIS position, your VAT treatment and what is actually locked up. If we cannot save you anything, we will say so.
One short email: what has changed in CIS and construction VAT, the dates coming up, and one number worth checking on your own invoices. No spam, unsubscribe any time.