VAT relief extended to charitable purpose buildings, water source heat pumps, battery storage and Smart diverters

From 1 February 2024 the VAT relief on energy-saving materials (ESMs) was expanded to cover installations in buildings used solely for a relevant charitable purpose, and to add water source heat pumps, electrical battery storage and smart diverters to the list of qualifying materials¹. The change also brings certain preparatory groundworks, and dredging of a body of water, into the relief where they are needed to install pipework or other equipment for a ground or water source heat pump¹.

The measure was announced at Autumn Statement 2023 following a Call for Evidence, whose summary of responses was published on 11 December 2023¹. It was implemented by amendment to Group 23 of Schedule 8 and Group 2 of Schedule 7A to the Value Added Tax Act 1994¹. The legislation.gov.uk text of Schedule 7A records the insertion of water source heat pumps, electrical storage batteries and smart diverters into the meaning of "energy-saving materials" with effect from 1 February 2024⁴.

"This measure extends the relief to installations of ESMs in buildings used solely for relevant charitable purposes, such as village halls or similar recreational facilities for a local community."

The relief applies to the services of installing energy-saving materials, and to materials supplied by the person who installs them, in residential accommodation and charitable buildings. Materials supplied without installation remain standard-rated⁵. HMRC gives the example that a central heating system built around an air, ground or water source heat pump is a single zero-rated supply, whereas one built around a conventional boiler is standard-rated⁵. Mechanical Ventilation Heat Recovery systems do not qualify, as they are not air source heat pumps⁶.

Source: HMRC internal manual VENSAV3037³. The manual states that these changes qualify for the temporary zero rate until 31 March 2027, after which they will be reduced rated³. HMRC's policy paper puts the reduced rate at 5%².

Why it matters for households

For a household, the relief is worth the VAT that would otherwise be charged on the installation. HMRC states that individuals will be able to benefit from lower prices charged by installers, but adds that the savings depend on the degree to which businesses pass the VAT savings on to their customers². The relief covers the VAT Relief on Energy-Saving Materials and the VAT on Home Energy Installations themselves, and applies to heat pump installations including water source heat pumps⁷.

Battery storage is now within scope where the battery is intended solely for storing electricity supplied to the property or generated by a microgeneration system⁴. The rate on home battery storage therefore depends on the date and the circumstances of the installation, and the relief does not require solar panels to be present, since grid-supplied electricity is included in the definition⁴. A smart diverter, which automatically diverts electricity generated by a microgeneration system to appliances in the building rather than exporting it to the grid, also qualifies, including when retrofitted to an existing system⁸.

The relief applies to installations in buildings used solely for a relevant charitable purpose, which the legislation defines as use by a charity otherwise than in the course of a business, or as a village hall or similarly in providing social or recreational facilities for a local community⁴. Homes themselves are unaffected by that part of the change.

What happens next

The temporary zero rate runs to 31 March 2027, after which supplies revert to the reduced rate of VAT at 5%². HMRC states the measure will be kept under review through communication with affected taxpayer groups². The published Exchequer impact figures are £5 million in 2023 to 2024, £20 million in 2024 to 2025, £20 million in 2025 to 2026, £25 million in 2026 to 2027, £20 million in 2027 to 2028 and £25 million in 2028 to 2029². No further changes beyond 31 March 2027 have been reported.

Sources8 cited

1. VENSAV2082 - Extension of the relief in 2024 - HMRC internal manual - GOV.UK, gov.uk
2. Extension of VAT energy-saving materials relief - GOV.UK, gov.uk
3. VENSAV3037 - Energy-saving materials: further expansion of the relief from 1 February 2024 - HMRC internal manual - GOV.UK, gov.uk
4. [](https://www.legislation.gov.uk/ukpga/1994/23/schedule/7A/part/2/chapter/2/2024-04-06/data.xht), legislation.gov.uk
5. Energy-saving materials and heating equipment (VAT Notice 708/6) - GOV.UK, gov.uk
6. VENSAV3080 - Energy-saving materials: ground source heat pumps and air source heat pumps - HMRC internal manual - GOV.UK, gov.uk
7. VENSAV3081 - Energy-saving materials: water source heat pumps - HMRC internal manual - GOV.UK, gov.uk
8. VENSAV3062 - Energy-saving materials: smart diverters - HMRC internal manual - GOV.UK, gov.uk