UK extends the VAT zero rate to water source heat pumps, home batteries and smart diverters

What changed in detail

The Value Added Tax (Installation of Energy-Saving Materials) Order 2024 (SI 2024/24) was made on 10 January 2024 and came into force on 1 February 2024. It amends two parts of the Value Added Tax Act 1994 in the same way:

• Schedule 8, Group 23, the zero rate for installing energy-saving materials, which runs until 31 March 2027 (article 3);
• Schedule 7A, Group 2, the 5% reduced rate that takes over from 1 April 2027 (article 2).

In both, it adds three items to the list of energy-saving materials:

• water source heat pumps;
• electrical storage batteries, if intended solely for storing electricity supplied to the premises or generated by a microgeneration system;
• smart diverters, meaning devices that automatically divert electricity generated by a microgeneration system to one or more appliances.

It also extends items 1 and 2 from residential accommodation to buildings used solely for a relevant charitable purpose. Groundworks and dredging needed to install the pipework for a ground or water source heat pump now count as part of the installation.

What it means

This change is in force until 31 March 2027. legislation.gov.uk still shows Group 23 ending on that date, and no later instrument has extended it. From 1 April 2027 the same items move to the 5% reduced rate, because this Order made the identical additions to Schedule 7A, Group 2.

Two points matter for an installer. A battery qualifies only on its own wording: it must store electricity supplied to, or generated at, the premises. The charitable-building extension covers only buildings used solely for a relevant charitable purpose, not every building a charity uses. Installations completed from 1 April 2027 should be invoiced at 5%, not 0%.