The Renewable Energy Consumer Code (RECC) published news on 18 December 2023 that the Government has announced an expansion of VAT relief on energy saving materials (ESMs), commencing 1 February 20241. The item was written by Anthony Sammie1.
Under the expansion, zero-rated VAT applies to electrical battery storage, water-source heat pumps, and diverters retrofitted to energy saving materials such as solar panels and wind turbines1. The relief also extends to the installation of ESMs in buildings used only for relevant charitable purposes, while remaining in place for residential buildings1.
RECC states that the Government is expected to publish a list of ground-works required for installation of ground source and water source heat pumps to benefit from the relief1. The temporary zero VAT rate has a five-year span from its introduction in 2023 and is due to expire on 31 March 20271. In the Spring Budget of 2023, the Government launched a Call for Evidence seeking views from stakeholders on further reforming the relief, particularly extending it to additional technologies1.
Virginia Graham, Chief Executive of REAL, said:
"At RECC and EVCC, we welcome this extension of VAT to additional technologies. This gives consumers further opportunity to install energy saving materials, particularly water source heat pumps and electricity battery storage, which will provide consumers with greater incentive to adopt renewable energy technologies. We encourage consumers to take advantage of this relief and implore Government to continue exploring policy initiatives to encourage domestic and business consumers to invest in critical energy saving materials."
RECC states that the policy update will enable more households to install energy saving technologies, improve efficiency and reduce energy bills, and that the initiative is also aimed at meeting the commitment to reach net zero greenhouse gas emissions by 20501.
| Item | Detail as reported |
|---|---|
| Expansion commences | 1 February 20241 |
| Newly zero-rated | Electrical battery storage; water-source heat pumps; diverters retrofitted to ESMs such as solar panels and wind turbines1 |
| Non-residential scope | Installation of ESMs in buildings used only for relevant charitable purposes1 |
| Relief end date | 31 March 20271 |
Why it matters for households
VAT is charged on the supply and installation of many home energy products, so whether a technology sits inside or outside the relief changes the total price a household pays. The VAT relief on energy-saving materials is therefore one of the few levers that affects the cost of a home energy installation directly, rather than through a grant or a subsidy paid after the work is done.
For a household considering battery storage or a water-source heat pump, the change means these technologies are treated in the same zero-rated way as the materials already covered. A diverter, which sends surplus electricity from a solar panel or wind turbine to a hot water cylinder rather than exporting it, is also included when retrofitted to an existing energy saving material1. That matters for energy independence because it raises the value of generation a home already has, rather than requiring new generation to be bought.
The relief is temporary. RECC reports it runs for five years from its introduction in 2023 and expires on 31 March 20271, so the end date is a fixed point in the policy rather than an open-ended arrangement. The treatment of ground-works for ground source and water source heat pumps has not yet been set out; RECC says a list is expected1, and no list has been reported.
What happens next
The expansion takes effect on 1 February 20241. The Government is expected to publish a list of ground-works required for installation of ground source and water source heat pumps to benefit from the relief1. The zero rate is due to expire on 31 March 20271.