VAT change may draw pre-April demand for UK home energy installers

Heat Pump Association seeks VAT guidance and warns of installer disruption

The Liberal Democrats said a household planning an air-source heat pump, a 4KW solar installation and a home battery could face an extra £1,530 unless it was able to undertake the work before April. The Guardian reported that households planning green-energy upgrades risked a nationwide rush to find an installer or hundreds of pounds in unexpected costs unless the government abandoned the looming VAT increase, which it said could add up to £1,530 to a smart home energy system. Ministers were under growing pressure to reverse the policy.

The Guardian reported that the chancellor’s budget statement signalled plans to remove the 5% VAT exemption on home heat pumps, solar panels and batteries from 1 April. The budget statement also signalled plans to shrink the total amount for heat-pump grants over the coming financial year and cut extra grant funding for heating-oil users at the same time as the planned VAT reinstatement.

The Guardian reported that demand for home-energy upgrades had reached record highs across the UK since the Middle East war caused gas-market prices to double across Europe, pushing home-energy bills to near four-year highs. The report also cited record demand for fossil-fuel alternatives.

Industry groups warned that the VAT cliff edge could trigger a surge in installation demand before the deadline, creating a “feast and famine” upheaval for the country’s nascent network of home-energy installers after years of tepid household interest.

Chris Hewett, chief executive of Solar Energy UK, said the rise would “raise the cost of the loans scheme that has only just been launched” and would be “inconsistent with the government’s intention for more people to enjoy the benefits of home solar and battery systems.” Energy-industry leaders said the increase could undermine government schemes supporting the industry, including the launch of state-backed low-interest loans. Hewett said: “With domestic electricity bills now zero-rated until July next year, saving energy will be taxed more heavily than consuming it – a perverse incentive. We will be urging the government to reverse course.”

Charlotte Lee, chief executive of Heat Pump Association UK, said the abrupt change risked “creating a rush of applications ahead of April, disrupting the supply chain and making the process less predictable for consumers.” Lee said, “The savings to government must be weighed against the risk of disrupting consumers, undermining industry confidence and stalling an emerging market.” The trade association was seeking clarity from the government on how the reintroduction of VAT would apply so households could avoid an unexpected bill if a pre-booked installation was delayed beyond the exemption deadline.

The Liberal Democrats said removing the relief was “inconsistent” with the government’s focus on protecting bill payers from the surging cost of fossil fuels after ministers cut VAT on electricity bills in part to encourage electric alternatives to fossil fuels. Pippa Heylings, the Liberal Democrat’s spokesperson for Energy Security and Net Zero, said: “It is total policy madness for the government to strip VAT from electricity bills with one hand, only to slap it straight back on to heat pumps with the other. They are telling families to switch to clean electricity, while simultaneously punishing them with a £1,530 tax hike for buying the very kit needed to do so.” Heylings called on ministers to “urgently reverse this shortsighted heat pump tax,” a demand echoed by energy-industry leaders who fear the rise may undermine government schemes.

A Department for Energy Security and Net Zero spokesperson said: “More and more families are switching to clean energy technology, with record numbers of people applying for heat pumps and receiving grants through the Boiler Upgrade Scheme in September.” The spokesperson said: “We are driving forward electrification and the clean tech market, protecting support for low-income families and launching our new warm homes loan scheme so households can purchase heat pumps, solar panels and batteries at no upfront cost.”

The unresolved practical issue was how VAT would apply if a pre-booked installation slipped beyond 1 April. The Heat Pump Association UK’s request for guidance aimed to prevent a delay from leaving households with an unexpected bill, while Solar Energy UK and the Liberal Democrats called on ministers to reverse the tax change.