The challenges posed by climate change have made it more important than ever to consider renewable energy sources as a crucial component towards a sustainable future.

However, the tax implications of transitioning to renewable energy adoption are not widely discussed.

VAT is a key consideration and understanding how it impacts renewable energy projects is essential – particularly for contractors and subcontractors installing energy saving materials.

Therefore, various legislative changes have been made in regards to VAT rates on the installation of energy-savings materials and heating equipment since October 2019.

Recent developments

From the 1 May 2023 to 31 March 2027, a zero rate applies to the installation of certain specified energy saving materials in residential accommodation and charitable buildings.

From the 1 February 2024, additional energy saving materials have been added to the energy savings material list and include:

• Water source heat pumps
• Batteries for storing energy converted from electricity
• Small diverters

Furthermore, from 1 February 2024, the zero rate will apply to supplies of ‘groundworks or dredging a body of water in order to install pipework or other equipment needed for the operation of a ground or water source heat pump installed in residential accommodation or buildings intended for use solely for a relevant charitable purpose’. 

Unfortunately, the zero rate is only temporary and will revert to 5% from the 1 April 2027 under current proposals.

For further insights into the practical application of these rules, visit our article diving into the detail: Zero rating on the installation of specified energy saving materials