Self BuildersEnergy Efficient RetrofitMy Retrofit Combines Insulation, a Heat Pump, and General Building Work — What VAT Rate Applies?
A whole-house retrofit combining qualifying energy-saving materials (ESM) with general building works — roofing, plastering, structural works, kitchen, bathrooms — can legitimately carry more than one VAT rate. Qualifying ESM elements (insulation, heat pump, solar PV, etc.) supplied and installed as distinct packages are at 0%. General building works are at 20%. The key issue is HMRC's single-supply rule: where qualifying ESM is genuinely incidental to a wider general building contract, the 20% rate of the dominant supply applies to the whole package. Conversely, where the ESM installation is the principal or primary supply — engaged as a standalone specialist contract — the 0% rate applies to that supply. How the works are packaged, contracted, and described matters as much as the technical specification.
On a £250,000 whole-house retrofit, the qualifying ESM element might represent £80,000 of insulation, heat pump, and solar installation. Whether those elements are contracted separately (potentially 0%) or bundled into a general building contract (likely 20%) can determine the VAT rate on £80,000 of work — a material difference. The correct answer depends on the genuine structure of the supply, not the taxpayer's preferred outcome.
Where a contractor is engaged principally to install qualifying ESM — for example, a specialist insulation contractor installing solid wall insulation as their primary scope — the entire supply (materials and labour) is at 0% until 31 March 2027. The ESM must be the principal element of the supply, not incidental to wider building works.
Where a general contractor quotes to carry out a full renovation — including roofing, structural works, replastering, and also fitting cavity wall insulation — the single-supply rule means the 20% rate of the dominant supply (general building) applies to the whole package, including the insulation element.
If the general renovation is contracted with one firm (20%) and the qualifying ESM is contracted separately with a specialist installer (0%), both rates are correctly applied to their respective contracts. Genuine separation of packages — where the contractual structure reflects the economic reality — is the correct approach.
The correct question is not 'can we separate the packages to get a lower rate?' but 'does the genuine structure of this supply constitute a qualifying ESM supply, or is the ESM incidental to something broader?' Artificial separation is not acceptable. Genuine package definition — reflecting how the project is actually tendered, contracted, and delivered — is what determines the rate.
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 reviews each invoice and package on a mixed retrofit project against the principal-supply test and HMRC's published ESM rules. It identifies whether qualifying ESM elements are genuinely contracted as distinct supplies or bundled into a general building package, and flags any invoice line where the rate applied may not match the supply structure — with the specific Notice 708/6 paragraph that governs the analysis.