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HMRC internal manual

VAT Energy-Saving Materials and Grant-Funded Heating Supplies

Energy-saving materials: energy-saving materials supplied with other works

Traders often claim that energy saving material installed as part of a greater supply, such as thermostatic radiator valves supplied as part of new central heating system, or insulation supplied as part of a new roof are automatically liable to the reduced rate. This is not the case. Energy-saving materials (ESMs) are subject to the normal VAT rules concerning single and multiple supplies. SeeNotice 708/6 Energy Saving Materials for further details.

The issue of whether energy saving materials should still be subject to the reduced -rate even when supplied as part of a larger supply was addressed in Beco Products Ltd [2004] (V18638). Finding that the appellant’s insulation system was installed as part of a wider supply of works the Chairman said:

I think, therefore, that Mr Sephton is right, in the case of entire contracts for the building of (say) an extension, to submit that one must have regard to the VAT treatment of the building as paramount. Mr Preston’s evidence amounted, as I find, to showing that the contracts in the case of the St Annes and Netherton projects carried out by his firm were indeed entire contracts. That being so, and as paragraph 2.1.2 of the Notice indicates, the supply of the system should be treated as incidental to the supply of the extensions in those cases. In such cases there is, indeed, a single supply of construction services, as the Notice says. It seems to me, therefore, that VAT was correctly charged at 17.5% in respect of each of those projects.

Of course, there will remain those cases where the insulation is the subject of a separate supply. It may well be possible to arrange the supply of the installation of the blocks so that that supply is demonstrably apart from any other supplies. There is however no evidence before the tribunal on this occasion of any such separate supply.

Energy-saving materials which are incorporated by a builder in a new dwelling are zero-rated. If your trader is involved in the construction of new dwellings, or conversion work to create new dwellings, you should consult Notice 708 Buildings and construction.