Which Retrofit ESM Measures Qualify for 0% VAT?

Self Builders Energy Efficient RetrofitWhich Energy-Saving Measures Qualify for 0% VAT on a Retrofit?

Which Energy-Saving Measures Qualify for 0% VAT on a Retrofit?

Certain energy-saving materials (ESM) supplied and installed by a VAT-registered contractor in a domestic building are currently zero-rated at 0% VAT under HMRC Notice 708/6. The qualifying measures include insulation (cavity wall, solid wall, loft, floor, underfloor), air-source and ground-source heat pumps (including qualifying preparatory works), solar photovoltaic panels, wind turbines, water turbines, central heating and hot-water controls (including thermostats and boiler control units), and draught stripping. The 0% rate applies to the contractor's supply-and-install — not to materials you purchase yourself, and not to associated general building works that are not themselves qualifying ESM. The rate is currently in force until 31 March 2027; from 1 April 2027 qualifying ESM reverts to 5%.

Why this matters

On a £60,000 insulation and heat-pump package, the difference between qualifying for 0% VAT and being charged 20% is £12,000. That rate is determined at the point the invoice is raised — not after completion. A contractor who does not recognise the qualifying nature of a supply, or who bundles qualifying ESM into a general renovation contract, will default to 20%.

The key distinctions

0% — qualifying ESM supply-and-install by a contractor

The following measures qualify when supplied and installed by a VAT-registered contractor in a domestic building: insulation (cavity wall, solid wall, external wall, loft, roof, floor, underfloor); air-source heat pumps; ground-source heat pumps; solar photovoltaic panels; solar thermal panels; wind turbines; water turbines; central heating controls; hot-water controls; draught stripping. Rate applies until 31 March 2027.

20% — materials purchased directly by the homeowner

If you buy insulation boards, heat pump components, or other ESM from a merchant yourself, you are charged 20% standard rate. The zero-rated supply-and-install treatment requires the same contractor to both supply and install the qualifying materials.

20% — general building works associated with ESM

Works that are not themselves qualifying ESM — roofing timbers, plasterboard, flooring substrate, brickwork — are standard-rated at 20% even where they are carried out alongside qualifying ESM installations. Only the qualifying ESM element itself attracts the 0% rate.

Action needed — assess how your project is packaged

If your retrofit combines qualifying ESM with general renovation works on a single contract, the VAT treatment of each element depends on whether the supply is genuinely a qualifying ESM supply or whether the ESM is merely incidental to a larger general works contract. This package-level assessment is where errors are most common.

Practical checklist

Identify every qualifying ESM measure in your project scope before accepting any quotation

Confirm your contractor will supply and install the qualifying measures — not just install materials you have sourced

Ask for a separate line (or separate contract) for each qualifying ESM element so the 0% rate is clearly applied

Confirm the 0% rate will appear on the contractor's invoice for each qualifying element

Check that general building works associated with the ESM installation are separately priced at 20%

Note that the 0% rate applies to supplies made on or before 31 March 2027 — later supplies will be at 5%

Retain the technical specification and installation records for each qualifying measure

HMRC notice references

HMRC Notice 708/6—Energy-saving materials and heating equipment — qualifying measures and rates

HMRC Notice 708/6 Appendix A—List of qualifying energy-saving materials

HMRC Notice 708/6 Paragraph 2.1—Supply-and-install requirement for ESM zero-rating

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.

What VATBuild checks for this situation

VATBuild maps each line item on your retrofit invoices against the qualifying ESM list in Notice 708/6 and checks whether the contractor has applied the 0% rate to qualifying supply-and-install lines. It identifies any line where a qualifying ESM element appears to have been charged at 20% and flags it for review — alongside the specific HMRC rule that determines the correct treatment.