VAT on heat pumps: what you pay and when it changes

The rate and the date

HMRC treats heat pumps as energy-saving materials. Under VAT Notice 708/6, installing them in residential accommodation is zero-rated for the period 1 May 2023 to 31 March 2027. From 1 April 2027 the reduced rate of 5% applies instead. Ofgem’s guidance for property owners repeats the end date. GOV.UK’s notice was read in full for this page on 8 October 2026; notices are revised, so confirm the current wording before you rely on a date.

The rate depends on when the supply takes place, not on when you first asked for a quote. A job that slips past 31 March 2027 may carry 5%. The tax point rules, which can be affected by deposits and invoicing, are HMRC’s; ask the installer to confirm in writing which rate applies given your deposit and completion dates.

For scale, 5% of the £12,826 median air source price is about £641. The median’s own VAT treatment is not stated in the statistics, so read that as the size of the difference, not a prediction of your invoice.

VAT is one line of the bill. The heat pump installation cost guide covers the rest of a quote and how it compares with the official medians. The zero rate and the £9,000 off-gas band both run to 31 March 2027, so if your job could slip, check the Boiler Upgrade Scheme end date and budget as well.

What qualifies for 0% VAT

• Air source, ground source and water source heat pumps. Water source heat pumps were added from 1 February 2024.
• Installations in residential accommodation and charitable buildings. That is HMRC’s wording. Ordinary homes are the clear case.
• A supply that includes installation. HMRC says the relief applies to the supply of the materials by the person who installs them.

The relief covers the heat pump installation, and the installer should say which parts of the quote it covers. Related items such as a cylinder or radiators may be treated differently depending on how they are supplied, so ask for the VAT treatment of each line rather than assuming. If your installer says something that sounds off, HMRC’s notice is the reference.

What does not qualify

• Supply-only. HMRC states that if you supply energy-saving materials without installing them, the supply is standard-rated. Buying a unit yourself and hiring someone else to fit it does not get the relief.
• Business premises. The relief is for residential accommodation and charitable buildings, so commercial installations are generally standard-rated. This site is for householders.
• Work after the end date. From 1 April 2027 the 5% rate applies.

Air conditioning units are a grey area. HMRC’s understanding is that most are air source heat pumps, but treatment depends on the facts in cases of doubt. Air-to-air units can attract the £2,500 grant for residential properties (see grant amounts); the quote should say how VAT is treated on the specific unit.

How VAT should look on a quote

A quote should show the installation price, the VAT treatment, the grant as a deduction and the balance you pay. Ofgem’s guidance requires the grant and balance to be shown. A zero-rated job needs no VAT line to argue about; after 31 March 2027 it should show 5% on the taxable amount. If the quote only gives a total, ask for the breakdown. Our quotes checklist includes the question.

VAT and the grant

The grant is a fixed deduction for the technology and fuel: £7,500 for air-to-water and ground source heat pumps, £9,000 where the home has no mains gas and replaces oil or LPG (applications from 21 July 2026 to 31 March 2027), £2,500 for air-to-air heat pumps in residential properties. How VAT is calculated on an invoice with the grant deducted is for the installer to set out; we do not give a formula, because we have not found HMRC wording that settles it for every case. The practical point is that both the 5% VAT rate and the end of the £9,000 band fall in the same spring, so ask your installer to model the balance on each date. The cost impact at the median is covered in air source cost after the grant.

Electricity VAT is a different thing

Do not confuse the installation relief with the temporary removal of VAT on household electricity. Ofgem’s price cap for 1 October to 31 December 2026 gives electricity at 26.32p per kWh and notes that it does not include VAT from 1 October 2026 to 31 March 2027. Gas keeps its normal 5%. They are separate rules that happen to end on the same date, 31 March 2027, and either could be extended or ended independently. If you are working out running costs, see running costs compared, which uses the current cap.

Timing your installation

The practical advice is short. Know the date (31 March 2027), ask for the VAT treatment in writing, and do not trade a good design for a deadline. Installers' diaries and grant applications take time: the voucher lasts 3 months for most heat pumps and 6 for ground source, and a ground source job on a tight schedule is the one most exposed to the date. The process is in how to apply, and the other deadlines (the £9,000 band and ECO4) are in end date and budget. To judge the cost of the whole job, start with heat pump installation cost, which shows the balance at the median: about £5,326 after £7,500.