The definition of use for a relevant charitable purpose was inserted into Group 2 of Schedule 7A to the Value Added Tax Act 1994 on 1 February 2024, by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024 (S.I. 2024/24)1. The same instrument renumbered the paragraph defining energy-saving materials and inserted new notes on electrical storage batteries and smart diverters1.
Group 2 sets out the supplies that qualify for the reduced rate. It covers relevant supplies of services of installing energy-saving materials in residential accommodation, or a building intended for use solely for a relevant charitable purpose, and relevant supplies of energy-saving materials by a person who installs those materials in the same locations1.
"Group 2 Notes para. 1A and cross-heading inserted (1.2.2024) by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024 (S.I. 2024/24)"
The materials listed in the schedule include insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings; draught stripping for windows and doors; central heating system controls (including thermostatic radiator valves); hot water system controls; solar panels; ground source heat pumps; air source heat pumps; water source heat pumps; micro combined heat and power units; and boilers designed to be fuelled solely by wood, straw or similar vegetal matter1. Electrical storage batteries within sub-paragraph (2) and smart diverters are also listed1.
An electrical storage battery qualifies if it is intended for use solely for storing energy converted from electricity supplied to the residential accommodation or building in question, or generated by a microgeneration system1. A smart diverter is defined as a device capable of automatically diverting electricity generated by a microgeneration system to one or more appliances, in particular circumstances1. Installing energy-saving materials includes carrying out groundworks, or dredging a body of water, in order to install pipework or other equipment necessary for the operation of a ground source heat pump or a water source heat pump1.
Residential accommodation is defined to include a building, or part of a building, that consists of a dwelling or a number of dwellings, and a building, or part of a building, used for a relevant residential purpose1. The heading of Group 2 was substituted on 1 May 2023 by The Value Added Tax (Installation of Energy-Saving Materials) Order 2023 (S.I. 2023/376), which also substituted Items 1 and 2 and omitted Item 31. The heading now reads "Installation of energy-saving materials from 1st April 2027"1.
Why it matters for households
The reduced rate of VAT on installing energy-saving materials turns on where the work is done and what is installed. For a householder, the relevant location is residential accommodation, which the schedule defines to include a dwelling or a number of dwellings1. The insertion of the relevant charitable purpose definition extends the same treatment to buildings used solely for that purpose, which affects community buildings, village halls and similar premises rather than private homes1.
The list of qualifying materials determines whether a given measure falls inside the reduced rate. Insulation, draught stripping, heating and hot water controls, solar panels, heat pumps, micro combined heat and power units and certain biomass boilers are named1. Battery storage and smart diverters are named too, but only on the conditions set out in the notes: a battery must be intended solely for storing electricity supplied to the building or generated by a microgeneration system, and a microgeneration system must itself be an energy-saving material for the purposes of the Group1. Groundworks and dredging count as part of the installation for ground and water source heat pumps1.
The schedule does not state a VAT rate in the text quoted here, and no rate change is recorded in these provisions. Households looking at what support exists for such work can find the wider picture in the grants and schemes hub.
What happens next
The heading of Group 2 refers to installation of energy-saving materials from 1 April 20271. The legislation page records that the provision is up to date with all changes known to be in force on or before 17 September 2026, and that changes may be brought into force at a future date1. It also lists a temporary modification of Schedule 7A Part 2 Group 1 by S.I. 2026/987 that has yet to be applied to the text1. No further detail on that instrument is given in the material quoted here.
Sources1 cited
- Value Added Tax Act 1994, legislation.gov.uk