Is VAT on solar panels and heat pumps zero-rated in Northern Ireland?

The relief is not automatic for every product. Outside it, solar is subject to 20% VAT unless a reduced rate of 5% applies⁵. Heating equipment not funded through an energy efficiency grant, energy efficient boilers, secondary or double glazing, low emission glass, energy efficient fridge freezers, and wind and water turbines in Northern Ireland only, all remain at 20%⁶.

For a household, the practical effect is that the installation element of a qualifying job carries no VAT while the temporary rate lasts, which lowers the up-front cost of moving heating and generation off imported fuel. What remains is the grid connection, the installer's competence, and the fact that the relief has an end date.

The zero rate: what it covers and when it started

The temporary zero rate for energy-saving materials was extended to Northern Ireland to align its treatment with Great Britain, where it had been introduced on 1 April 2022 and applied until 31 March 2027². In Northern Ireland the zero rate opened on 1 May 2023 and closes on 31 March 2027¹. The statutory instrument that made the change introduced a temporary zero rate of VAT for the installation of qualifying energy-saving materials in residential accommodation in Northern Ireland².

The relief is written around installation, not just goods. Schedule 8, Group 23 of the VAT Act 1994 specifies when installations of energy-saving materials in Northern Ireland are zero-rated during the period 1 May 2023 to 31 March 2027⁹. From 1 April 2027 the treatment of installation of energy-saving materials in Northern Ireland moves to the reduced rate¹⁰.

Controls for central heating and hot water systems are zero rated UK wide to March 2027, now applicable to Northern Ireland, with eligibility conditions removed permanently in Northern Ireland¹. Water source heat pumps qualify for the temporary zero rate until 31 March 2027 when installed in, or in the curtilage of, residential accommodation or buildings intended for use solely for a relevant charitable purpose⁴.

The rate was widened again from 1 February 2024, applying to 31 March 2027³. For a household, the sequence matters: a job completed before 1 May 2023 in Northern Ireland did not have the same treatment as one completed after, and a job completed after 31 March 2027 will not either.

Northern Ireland's separate VAT position on solar PV

Northern Ireland does not simply mirror Great Britain. The rate a household pays and its eligibility depend on whether the property is in Great Britain (England, Scotland and Wales) or Northern Ireland⁷. Solar thermal and PV systems are included on the list of energy-saving materials, and their supply and installation are now subject to 0% VAT in Great Britain⁵. In Northern Ireland the same relief exists but on a different clock, opening on 1 May 2023 rather than 1 April 2022².

The older reduced rate history also differs. Energy-saving materials qualified for the reduced rate of 5% subject to the 60% test for supplies made in Great Britain between 1 October 2019 and 31 March 2022, and for supplies made in Northern Ireland from 1 October 2019¹². That 60% test, which looked at the proportion of the cost represented by materials, applied to supplies made in Great Britain between 1 October 2019 and 31 March 2022 and to supplies made in Northern Ireland from 1 October 2019¹².

There is a live example of the divergence. The Plug-in Solar Device Interim Product Specification states that its application to Northern Ireland is subject to further consideration and may require amendment¹³. So a product standard being developed for Great Britain is not automatically extended to Northern Ireland.

Great Britain versus Northern Ireland: where the 20% rate still applies

The 20% rate has not disappeared. Solar is subject to 20% VAT unless a reduced rate of 5% applies⁵. The list of non-qualifying energy products that stay at 20% includes heating equipment that is not funded through an energy efficiency grant, energy efficient boilers, secondary or double glazing, low emission glass, energy efficient fridge freezers, and wind turbines and water turbines in Northern Ireland only⁶.

Grant-funded work sits at 5%. In Great Britain or Northern Ireland, a household pays 5% VAT on heating equipment work funded through an energy efficiency grant if eligible⁷. That is a different route from the zero rate and applies to a different set of circumstances.

The wind and water turbine entry is the clearest Northern Ireland-only exclusion on the list, and it is worth noting because it runs in the opposite direction to the general alignment: here Northern Ireland carries a 20% charge that the relief does not reach⁶.

What the zero rate means for installation costs

The zero rate removes VAT from the qualifying installation, which changes the arithmetic of a quote. An official worked example for a solar panel and battery installation in Northern Ireland, where materials are more than 60% of the total cost, has the installer charging £5,385 excluding VAT, made up of £3,500 for materials and £1,885 for labour, with standard 20% VAT on materials and 5% VAT on labour⁶. The example shows how the split between goods and labour drives the outcome when the relief does not cover the whole job.

The wider saving case is separate from VAT. Solar panels are estimated to save £440 a year in Northern Ireland¹⁵. That figure is an estimate of bill savings, not a tax figure, and it sits alongside the up-front reduction the zero rate gives.

There is a supply chain condition attached to the transition. Sufficient supply chain capacity is needed for the maintenance and repair of zero carbon heating systems as well as installation in Northern Ireland¹⁶. A household weighing a heat pump is therefore weighing not only the VAT position at the point of installation but the availability of someone to service the system afterwards.

Eligibility: which installations qualify

The relief turns on where the equipment is installed and what it is. Heat pumps qualify when installed in, or in the curtilage of, residential accommodation or buildings intended for use solely for a relevant charitable purpose¹¹. Water source heat pumps, electrical battery storage and smart diverters are named within the relief¹¹.

Planning rules sit alongside the tax rules. Northern Ireland has new permitted development for domestic air-source heat pumps¹⁷. In England, Class G permitted development for air source heat pumps on domestic premises carries a condition that the pump is, so far as practicable, sited so as to minimise its effect on the external appearance of the building¹⁸. These are separate regimes, and a qualifying installation for VAT is not automatically a permitted one for planning.

Support schemes in Northern Ireland are narrower than in Great Britain. There are no dedicated heat pump schemes in Northern Ireland¹⁹. For ground source heat pumps, there is not a specific grant currently available, though a household can still get heat pump ready and apply for funding for insulation via NI Energy Advice²⁰. The Home Heating Oil Support Scheme is open to households who use oil as their primary source of heating, are resident in Northern Ireland, and, in either of the qualifying months, are in receipt of a qualifying benefit, or a single person or couple, including pensioners, with an annual income of less than £30,000 net of allowable deductions²². The Priority PV Scheme is for Northern Ireland Housing Executive tenants only, outside a natural gas area, in a single storey Housing Executive property with oil or electric heating, for a couple or single parent family with an income or pension less than £35,000 gross²³.

Heat pump deployment statistics cover installations in the UK, but some devolved administration schemes in Scotland and Northern Ireland are currently not included²⁴. The heat pumps included in those figures are MCS certified and have a capacity of less than or equal to 45 kW²⁵. A Vaillant aroTHERM Split air source heat pump is described as MCS accredited and RHI eligible²⁶. Air, ground or water source heat pumps are eligible works under a Home Improvement loan category for heating²⁷.

The direction of travel is set out in official guidance: by 2040, more than two-thirds of homes in Northern Ireland are heated by low-carbon electric heating, predominately heat pumps²⁸. The VAT relief is one of the cost levers on that path, and it has a date on it.

Confirming the rate with an installer

The primary references are HMRC's VAT Notice 708/6: energy saving materials and the VENSAV manual¹³. The manual covers the scope of the relief, the 60% test and the Northern Ireland position¹². Further guidance is available in VAT Notice 708/6: energy saving materials and VENSAV3000¹³.

For the electricity connection side, Northern Ireland Electricity Networks expects a household to nominate an EV Charge Point or Heat Pump installer, who carries out checks at the property and submits the application, managing the whole application on the customer's behalf²⁹. That places the technical and administrative responsibility with the installer rather than the householder.

Case law has touched the boundary of the relief. Keeping Newcastle Warm C-353/00 concerned the question of whether a payment by a national agency to Keeping Newcastle Warm in connection with energy advice provided to householders was liable to VAT³⁰. It is a reminder that the treatment of a service can turn on what is actually being supplied.

For households comparing the VAT position with grant funding, the wider picture is set out in home energy grants in Northern Ireland and in the pillar guide to home energy grants and schemes. The general rules on which materials qualify are covered in VAT relief on energy-saving materials, and the end date is examined in how long the 0% VAT relief lasts.