Yes — significantly. The 0% VAT rate for qualifying energy-saving materials under HMRC Notice 708/6 requires the same VAT-registered contractor to both supply the materials and carry out the installation. If you purchase insulation boards, heat pump components, or solar panels from a merchant yourself and then engage a contractor to fit them, two separate supplies have occurred: a 20% merchant sale (materials only) and a 20% installation-only service. Neither element qualifies for the 0% rate, because neither constitutes a qualifying supply-and-install. Structuring your procurement so that the contractor takes on both supply and installation — where that genuinely reflects the intended arrangement — is the route to accessing the 0% rate.
On a £30,000 solid wall insulation package where you supply the materials and a contractor installs them: you pay 20% VAT to the merchant on the materials (£6,000) and 20% to the installer on the labour (£x,000). If the same contractor had supplied and installed, the whole supply would qualify for 0%. The procurement route — not the technical outcome — determines the VAT rate.
A VAT-registered contractor who both provides the qualifying insulation, heat pump, solar PV, or other ESM materials and carries out the installation makes a qualifying supply-and-install under Notice 708/6. The whole supply (materials plus labour) is at 0% until 31 March 2027.
A merchant selling ESM materials (insulation rolls, heat pump units, solar panels) to a homeowner charges 20% standard rate regardless of how the materials will be used. There is no reduced rate for a customer purchasing qualifying ESM products directly.
Where a contractor installs insulation or other ESM that the homeowner has already purchased, the contractor is making a supply of installation services only — not a supply-and-install. HMRC's position is that installation alone (without the contractor also supplying the materials) does not constitute a qualifying ESM supply and is charged at 20%.
If you are considering sourcing ESM materials yourself, assess whether asking the contractor to take on both supply and installation instead would be commercially equivalent — and would qualify the supply for 0%. This decision needs to be made before orders are placed, not retrospectively.
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 checks each invoice on your retrofit project to identify whether the contractor is making a qualifying supply-and-install ESM supply or an installation-only service against customer-supplied materials. It flags any line where the rate applied does not appear to match the structure of the supply, with a reference to the relevant Notice 708/6 paragraph.