Changes to the reduced VAT rate for energy-saving materials

HMRC has responded to its consultation on draft secondary legislation to alter the application of the reduced rate for energy saving materials.

Purpose of the instrument and legislative context

This instrument amends the scope of the reduced rate of 5% VAT for energy-saving materials to ensure that the UK legislation complies with EU law.

These changes have been made following a decision of the Court of Justice of the European Union (‘CJEU’) as a result of an infraction by the European Commission which held that the scope of the current relief was too wide. The Order amends group 2 of Schedule 7A to the Value Added Tax Act (“Group 2”) which makes provision in relation to the reduced rate that applies to the installation of energy-saving materials in residential accommodation. Items 1 and 2 of Group 2 specify the supplies that are included within the reduced rate and the Notes contain a number of definitions.

What is being done

The reduced rate of 5% will no longer apply to the installation of wind and water turbines.

The reduced rate will remain fully available (except on wind and water turbines) for supplies of services of installing energy-saving materials in residential accommodation where the supply is made to a qualifying person (a person who is aged 60 or over or is in receipt of certain benefits) or to a housing association or where the residential accommodation is a building or part of a building used solely for a relevant residential purpose.

Otherwise, the reduced rate will be available (except on wind and water turbines) provided that the value of the energy-saving materials does not exceed 60% of the total value of the supply of installing the energy-saving materials. If the value of the energy-saving materials exceeds 60%, then only the labour cost element will qualify for the reduced rate (with the supply of the materials being standard rated).


The impact on business, charities or voluntary bodies is expected to be negligible. The impact on the public sector is expected to be negligible. A Tax Information and Impact Note will be submitted with this memorandum and published alongside the Explanatory Memorandum on the website.


The measure will affect installations of affected ESMs from 1 October 2019.