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HMRC internal manual

VAT Energy-Saving Materials and Grant-Funded Heating Supplies

Energy-saving materials: apportionment of energy saving materials serving buildings used for both qualifying and non-qualifying purposes

VAT Act 1994, Schedule 7A, Group 2 Item 1 refers to services of installing ‘in’ residential buildings. This could be taken to imply that energy-saving materials such as wind turbines or ground source heat pumps are never subject to the reduced rate because they are not installed in a building, but in its curtilage. Consequently, we interpret the term ‘in’ in Item 1 to mean ‘serving’ a building.

There may be cases where, say, a wind turbine or a ground source heat pump serves a mixed use building such as a building consisting of student accommodation and retail units. The law does not allow for any apportionment in such cases meaning that the VAT liability will depend on whether the ESM primarily serves the qualifying or non-qualifying part of the building.