Qualifying energy saving materials (insulation, heat pumps, solar panels, wind turbines, water turbines, ground and air source heat pumps, micro-CHP, and certain draught stripping) supplied and installed by a VAT-registered contractor in a qualifying residential building are currently zero-rated at 0% VAT under HMRC Notice 708/6. This 0% rate applies until 31 March 2027. From 1 April 2027, the rate reverts to 5% reduced rate. The 0% rate applies only to supply-and-install contracts — it does not apply to materials purchased separately from a merchant, or to installation of customer-supplied materials.
On a £40,000 heat pump and insulation installation, 0% VAT instead of 20% is an £8,000 saving applied at source. From 1 April 2027, the rate reverts to 5% — still a saving over 20%, but smaller. Projects that can be contracted and invoiced before 31 March 2027 benefit from the full zero-rate window.
Supply and installation of qualifying ESM (insulation, heat pumps, solar PV, solar thermal, wind turbines, water turbines, ground source heat pumps, micro-CHP, draught stripping) in a qualifying residential building is zero-rated.
After 31 March 2027, the ESM rate reverts to 5% reduced rate under Schedule 7A. Projects contracted and invoiced on or after 1 April 2027 should be charged at 5%.
If you buy insulation boards, heat pump units, or solar panels from a merchant yourself, those materials are standard-rated at 20%. The reduced rate only applies to a contractor's combined supply-and-install.
The ESM zero-rate applies to supplies in residential buildings used as dwelling or number of dwellings. Commercial buildings do not qualify (different rules apply under Notice 708).
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 ESM invoice line against the qualifying materials list and confirms whether the 0% rate has been correctly applied. It flags any ESM supply charged at 20% and generates correction reports. It also highlights projects where invoices were raised after the 31 March 2027 deadline that should be at 5% rather than 0%.