Details of the change, introduced by the Chancellor, John Healey, are available in HMRC VAT Notice 708/6. It is not a full 20 percent tax hike, as the VAT rate is returning to the previous reduced rate of 5 percent, rather than jumping to the standard 20 percent rate. British households will need to install heat pumps before 1st April 2027 to avoid the new 5 percent VAT increase.
A 5 percent VAT charge adds roughly £645 to the cost of a typical air source heat pump installation. The zero-rating applies to both equipment and labour when supplied and installed by the same certified business. It covers air source and ground source heat pumps, solar panels, home batteries, and home insulation.
Heat pumps can reduce energy bills significantly and are 400 percent more efficient than gas boilers. They are not currently legally compulsory for existing residential homes by April 2027. However, under the Future Homes Standard, low-carbon heating systems will become mandatory for newly built homes in England from 2028.
Currently, renewable energy technology is popular among 85 percent of UK homeowners, on the basis of its ability to lower household energy bills.
“British households will need to install heat pumps before 1st April 2027, if they want to avoid facing a new 5 percent VAT hike introduced by the UK government” said Mr Schwerdfeger, The Eco Experts’ Deputy Editor. “This could hinder uptake of heat pumps and solar panels, as the new VAT hike could deter Brits from purchasing this technology.
Not only is the energy price cap going up again in January (maybe by as much as 20 percent) but VAT on clean technology is making a comeback on 1st April next year. Chancellor John Healey made a huge mistake by not keeping VAT off heat pumps, solar panels, and batteries at the Autumn Budget, as this will only make it more difficult for households to afford the very same technology they need to protect themselves from rising energy bill costs.
The UK needs to steer itself away from gas, but this can only be achieved through making solar and electrification more affordable and accessible. Adding VAT on clean technology is not the way to achieve this. In fact, it does the opposite.
If consumers are worried about their energy bills, we’d urge them to look into what government help is currently available to help add solar panels onto their roof, or a battery and heat pump in their home before cheap energy becomes even harder to access.
It’s important to remember that heat pumps are 400 percent more efficient than gas boilers, solar panels can cut household energy bills by as much as 65-70 percent a year, and storage batteries give access to energy tariffs that offer electricity at a fraction of the normal price.”
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