VAT on energy saving products

HM Revenue and Customs (HMRC) has confirmed changes to the VAT rates applicable to energy saving materials and heating equipment from 1st October 2019.

The VAT notice 708/6 explains when the installation of energy-saving materials and heating equipment is reduced rated and is based on two criteria:

  • Social policy conditions being met
  • 60% threshold being met

Social policy conditions include installing on a ‘qualifying persons’ main or sole residence. A qualifying person is defined in the notice as someone who is 60 or over, or receives one of the following:

  • Child Tax Credit (other than the family element)
  • Council Tax Benefit
  • Disability Living Allowance
  • Disablement Pension
  • Housing Benefit
  • Income-based Jobseeker’s Allowance
  • Income Support
  • War Disablement Pension
  • Working Tax Credit

There are other criteria for social policy conditions, such as work on children’s homes or care homes, and social housing – refer to the notice for more information.

Where social policy is not met, the 60% threshold test is applied – this is where the installer must first establish the price that it pays to purchase the materials (excluding VAT) being used in the installation, and calculate this as a percentage of the total value of its supply (excluding VAT) to its customer. The materials that must be included in this calculation are all of the goods supplied to the customer as part of the installation which remain in place once the job has been completed. If the total value of the materials does not exceed 60% of the total cost of the project to the customer, the lower rate of VAT can be charged for the whole project.

If the value of the materials exceeds 60% of the total project cost, the VAT must be calculated so that the VAT charged to the customer for materials is at the standard rate, and the VAT for labour is at the reduced rate.

For full details with regards to the changes please review the VAT Notice 708/6 Energy-saving materials and heating equipment.