Today in the Spring Budget the chancellor Rishi Sunak announced that VAT on energy saving materials will be reduced from 5% to 0% for a five year period.
This reduction in VAT comes into effect from April 2022 and represents a £1,000 cost saving in installing solar panels for an average house.
The chancellor has faced mounting pressure to help consumers with the rising cost of living in recent months. It is hoped this initiative will also further incentivise homeowners to transition towards a greener future.
“To help households improve energy efficiency and keep heating bills down, the government will expand the scope of VAT relief available for energy saving materials and ensure that households having energy saving materials installed pay 0% VAT.” Spring Statement, HMRC Treasury, 2022.
The primary installations where consumers stand to make a saving are on larger purchases such as solar panels, heat pumps and insulation.
Solar panels
According to statistics published by the government, a typical family that installs solar panels will save over £1,000 due to the VAT reduction.
Perhaps the most well-known and the most common form of renewable energy, solar photovoltaic systems, known as solar panels, convert sunlight directly into energy.
Solar water heating is also an option, reducing dependence on gas boilers to heat water for use in the home.
Heat pumps
There are two main types of heat pumps available; air source and ground source.
Air source heat pumps
Using a refrigeration cycle, air source heat pumps capture the heat from the air outside. This provides heat and hot water to properties through radiators, underfloor heating and cylinders.
Ground source heat pumps
Similar in principle to air source heat pumps, but instead of capturing heat from the air, they capture heat from the ground. Heat is captured either in horizontal pipes or boreholes.
Because ground heat is typically more consistent than air, ground source heat pumps tend to be more efficient, however, they often cost more to install.
