A heat pump (air source, ground source, or water source) supplied and installed by a VAT-registered contractor in a qualifying domestic dwelling is currently zero-rated at 0% VAT under the ESM scheme until 31 March 2027. The 0% applies to the whole supply-and-install of the qualifying heat pump system. However, wider heating system works — radiator upgrades, pipework, hot water cylinders — do not automatically take the 0% rate just because they are connected to the heat pump installation. These are separate building services works that may be standard-rated at 20%.
On a £25,000 heat pump installation, 0% VAT saves £5,000 compared to 20%. But the related pipework and cylinder replacement might add another £15,000 — if those are 20%, the total VAT on the project is not zero. Understanding what the 0% covers (and what it doesn't) is critical before contracting.
Ground source, air source, and water source heat pumps supplied and installed in a qualifying domestic building are qualifying ESM. The whole supply-and-install (unit, controls, refrigerant pipework integral to the unit) is 0% until 31 March 2027.
Materials that form an integral part of the heat pump system installation (the heat pump unit itself, controls, and materials incorporated in the qualifying supply) are included in the 0% rate as part of the combined supply.
Replacing radiators, installing underfloor heating, upgrading hot water cylinders, re-routing distribution pipework, or improving insulation to enable the heat pump to work efficiently are separate building services. They do not automatically follow the 0% heat pump rate.
If the installer is quoting a single price for the heat pump plus all the related system works, the single-supply test applies. Insist on separate pricing for the qualifying heat pump supply and any wider heating system works.
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 heat pump invoices against the qualifying ESM materials list and confirms whether the correct 0% rate has been applied to the qualifying supply. It identifies any wider system works invoiced under the same contract and checks whether those lines have been separately rated at 20%.