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HMRC internal manual

VAT Energy-Saving Materials and Grant-Funded Heating Supplies

Grant-funded installations: apportionment

Generally, where a contractor supplies and installs the goods (energy-saving materials) that are covered by this relief, and also carries out other work that is not relieved, the contractor must apportion the supply. The legal provision for apportionment is contained in the VAT Act 1994, Schedule 7A, Group 3, Legal Note 3(a) and 3(b).

If apportionment is necessary only because some of the work is not grant-funded, the reduced rate will apply to that part of the consideration that is paid by grant funding. The grant is taken to be inclusive of VAT at the reduced rate.

In other circumstances, an apportionment must be carried out by the supplier on a fair and reasonable basis, and the supplier must account for VAT on each element at the appropriate VAT rate.

You will find more detail on the subject of apportionment in Notice 700 The VAT Guide.