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, their installation in residential accommodation is zero-rated until 31 March 2027. From 1 April 2027 the reduced rate of 5% applies instead. Ofgem’s scheme page for property owners gives the same end date for heat pumps and biomass boilers.

VAT is fixed by when the supply takes place, so the date that matters is when the installation is done and invoiced, not when you first asked for quotes. A job that slips past 31 March 2027 would carry 5%.

How VAT is calculated once the 5% rate applies — including how the grant is treated on the invoice — is for the installer to set out on the quote; ask to see it itemised.

What qualifies for 0% VAT

• Air source, ground source and water source heat pumps installed in residential accommodation — a house, flat, second home or rented home.
• Most reverse-cycle air conditioning units. HMRC’s notice says its understanding is that most air conditioning units are air source heat pumps. Only permanently fixed units count, not portable ones.
• The installation work supplied with the equipment by the installer, including the parts that are part of fitting the system.
• Biomass boilers are also listed as energy-saving materials.

What does not

• Equipment bought without installation — standard-rated.
• Installations in business premises — generally standard-rated, usually recoverable by a VAT-registered business through its return. Some relevant residential and charitable buildings have their own rules.
• Gas boilers are not energy-saving materials for this relief. The notice has separate, narrower reduced-rate rules for some grant-funded heating work for qualifying people.

If you are unsure whether a particular supply qualifies, HMRC says it depends on the facts of each case; a VAT-registered installer will know how they invoice.

VAT and the grant

The Boiler Upgrade Scheme grant is deducted from your quote upfront, and while installation is zero-rated there is no VAT to argue about. Your invoice should show the price, the grant — £7,500, or £9,000 for eligible off-gas oil and LPG homes — and the balance, with VAT at 0%. If a quote adds VAT to a heat pump installation in a home before 1 April 2027, ask why.

New builds are different

The 31 March 2027 end date is for retrofit installations under VAT Notice 708/6. Energy-saving materials installed during the construction of a new dwelling fall under separate rules for new buildings and are zero-rated as part of the construction. Self-builders have their own refund scheme. Do not assume the retrofit end date applies to a house being built — and note that most new builds are not eligible for the grant anyway. See new builds, self-builds and second homes.

Not the same as the electricity VAT cut

A separate change removed VAT from household electricity bills in Great Britain from 1 October 2026 to 31 March 2027. That affects what a heat pump costs to run, not what it costs to install. The two windows happen to end on the same day, which is why they get confused. Running-cost comparisons made during the electricity window flatter heat pumps slightly; see heat pump running costs.

Timing your installation

Two dated changes land together: the 0% installation rate ends on 31 March 2027, and the £9,000 off-gas grant band is available only for applications properly made up to 31 March 2027. Neither is a reason to rush a decision you are not ready for. But if you have already decided, leave room for the survey, the Ofgem consent step and the voucher window — 3 months for air source, 6 for ground source. For the typical cost on the other side of the ledger, the official median installed cost of an air source heat pump was £12,908 in 2026 Q2 — see the cost after the grant, or check whether you qualify.