Air-source heat pumps (ASHPs) and ground-source heat pumps (GSHPs), including qualifying preparatory and ancillary works, are qualifying energy-saving materials under HMRC Notice 708/6. When supplied and installed by a VAT-registered contractor in a domestic building, the supply is zero-rated at 0% until 31 March 2027. From 1 April 2027 the rate reverts to 5%. The key conditions are that the same contractor must supply and install the heat pump (customer-supplied equipment does not qualify), the installation must be in a domestic building, and the heat pump must be the principal element of the supply — not merely incidental to a broader heating-system or building contract where the dominant element is general renovation work.
An air-source heat pump supply-and-install might cost £12,000–£25,000 depending on the property. At 0% VAT the whole supply attracts no VAT. At 20% — the rate a contractor may default to if unaware of the qualifying status, or if the heat pump is bundled into a general renovation contract — that is £2,400–£5,000 of potentially incorrect VAT on a single measure.
An air-source or ground-source heat pump supplied and installed by a VAT-registered contractor as the principal or primary scope of engagement qualifies for 0% until 31 March 2027. The contractor must both supply the heat pump unit and carry out the installation.
Works genuinely necessary to complete the qualifying heat pump installation — pipe runs, cylinder installation, electrical connection — may qualify as part of the supply where they are integral to the heat pump supply-and-install and not separately contracted as general building works.
If a general building contractor includes heat pump installation as part of a wider renovation scope — extension, kitchen, bathrooms, replastering — the single-supply rule may mean the whole contract, including the heat pump, is at 20%. The heat pump element is then incidental to the dominant general building supply.
If you purchase the heat pump unit yourself and engage a contractor to install it, the contractor is making an installation-only supply at 20%. The 0% requires the contractor to supply and install.
Check whether your heat pump is contracted with the heat pump installer directly (potentially 0%) or included in a general contractor's broader scope (potentially 20% under the single-supply rule). Confirm the contractor has applied the correct rate and basis on the invoice.
VATBuild is not affiliated with HMRC. References to HMRC publications are for informational purposes. Always consult a qualified tax adviser before making decisions about VAT on your project.
VATBuild identifies heat pump lines on your retrofit invoices and checks whether the correct rate has been applied against the qualifying conditions in Notice 708/6. It flags any heat pump supply charged at 20% where the supply appears to be a qualifying supply-and-install, and identifies heat pump elements bundled into general contractor invoices where the single-supply analysis may affect the rate.