Heat pump VAT changes from April 2027: what you need to know

What to know first

This summary covers the scheduled rate change, qualifying purchases and installation timing.

The temporary 0% rate applies to qualifying heat-pump installation services. When the installer also supplies the unit, the equipment can be included in the relieved supply.

The rate is scheduled to rise to 5% on 1 April 2027. What a household pays may depend on the contract, the work included and the VAT “tax point” — the date HM Revenue & Customs treats a supply or payment as taking place.

What changes on 1 April 2027?

HMRC says qualifying installations of specified energy-saving materials are zero-rated through 31 March 2027. From 1 April 2027, they are scheduled to return to the 5% reduced rate. The legislation also provides for that reduced-rate category.

This was the position checked on 25 August 2026. Parliament could amend the law before April 2027, so the date should be rechecked before publication and before it is relied on in a contract.

The change is UK-wide, but it applies only where the equipment, installation, building and contractual supply meet HMRC’s conditions.

Which air source heat-pump purchases qualify?

HMRC includes permanently fixed air source heat pumps. Portable or moveable units do not qualify. Relief can cover an installer supplying and fitting the unit, or the installation service where the customer bought the equipment separately.

This table is a starting point. The installer must apply the correct treatment to the actual contract. Its rates reflect HMRC’s installation rules and the present 20% standard rate.

HMRC gives an example in which a central heating system built around a heat pump is one zero-rated supply because its principal elements qualify. That does not make unrelated construction or decorating automatically eligible.

Good to know

VAT follows the contracted supply, not its marketing label. Ask for optional extras and separate building work to be itemised.

Does booking before April 2027 secure 0% VAT?

Not necessarily. On HMRC’s published rules, accepting a quote alone is not listed as a VAT tax-point event. For services, the basic tax point is normally completion. An earlier point can arise when the supplier issues a VAT invoice or receives advance payment.

A deposit creates a tax point for the amount it covers, not automatically for the balance. One project can therefore have several tax points.

Special rules also apply when a VAT rate changes. In some circumstances, a supplier may choose the rate at the basic tax point rather than the rate at an earlier or later actual tax point. HMRC says this choice is at the supplier’s discretion; the customer cannot insist on it.

Three simplified situations show the practical difference:

• Work, invoice and payment all before 1 April 2027: a qualifying installation should fall within the 0% period.

• Only the quote is accepted before the change: if work, invoice and payment occur later, the qualifying supply would normally be at 5%.

• A deposit is paid before the change: the deposit and balance may have different tax points, while the supplier’s use of the special rules may affect the result.

These scenarios are cautious applications of HMRC’s general rules, not rulings on individual contracts.

A VAT-registered installer or tax professional should check staged, financed or mixed-supply contracts.

Expert insight

“Ask which parts of the price are expected to carry 0% or 5%, which dates create tax points and what happens if the schedule slips.”

Giles Crosse

Energy Editor

Experienced editor, journalist and communications consultant specialising in consumer energy and low carbon technologies.

• Editor and campaign author for Shell, EDF Energy and Good Energy.
• Consultant to the United Nations and contributor to the World Economic Forum.
• Journalist for Reuters, the BBC, The Economist and The Guardian.

More about Giles Crosse

How much could the 5% VAT rate add?

A 5% rate adds £5 for every £100 of qualifying net cost. These examples assume the whole amount is a qualifying price before VAT. They exclude grants and are not quotations.

Actual quotes vary with the property, heat-pump size and radiator upgrades. An air-to-water system may also need a cylinder, pipework, controls or electrical work.

Running costs are separate. They depend on system design, radiator sizing, controls, electricity tariff and the heating system being replaced. The VAT change does not show whether household bills will fall.

A heat pump should not be chosen solely because of its VAT treatment. Technical suitability, running costs and alternative heating arrangements need to be considered for the property.

How do grants interact with VAT?

A grant can reduce the customer’s contribution, but it does not replace the VAT rules. The quote should show the grant, price and VAT clearly. The Boiler Upgrade Scheme is administered separately from HMRC’s installation relief.

An air-to-water system transfers heat into water for radiators, underfloor heating and, where included, a hot-water cylinder. An air-to-air system transfers heat into the air inside the home.

In England and Wales, the installer-led Boiler Upgrade Scheme currently offers £7,500 for an eligible air-to-water heat pump and £2,500 for an eligible residential air-to-air system. Eligible off-gas properties replacing oil or liquefied petroleum gas heating can receive £9,000 for an air-to-water or ground source system for applications properly made from 21 July 2026 through 31 March 2027.

In Scotland, eligible homeowners can apply through Home Energy Scotland for up to £7,500 as a heat-pump grant and £7,500 as an optional interest-free loan. A rural or island uplift can raise the heat-pump grant to £9,000. Work must not begin before a written funding offer arrives.

Energy Saving Trust said on 16 July 2026 that Northern Ireland had no specific household heat-pump grant. NI Energy Advice can check current grants and support and offers free, impartial information to Northern Ireland households.

Good to know

The £9,000 Boiler Upgrade Scheme uplift ends on 31 March 2027 under current guidance. This is separate from the VAT change.

What should you check before agreeing to an installation?

1. Get a heating assessment. Ask what radiators, cylinder, pipework, controls and electrical work the design includes. These items can materially affect the quotation.

2. Check the installer and funding route. Boiler Upgrade Scheme work requires a Microgeneration Certification Scheme-certified installer. Scottish grant-funded systems also require an MCS-certified installer and product.

3. Request an itemised written quote. Citizens Advice says it should show a fixed total, a breakdown, its validity, whether VAT is included and when the price can change. Ask for the net price, VAT rate and VAT amount separately.

4. Add a VAT-transition clause. It should explain what happens if installation, invoicing or payment crosses 1 April 2027, including who bears any extra tax.

5. Keep scheme approval separate from the contract. A grant application does not remove contractual obligations. Ofgem considers a Boiler Upgrade Scheme application “properly made” only after it has the required information, consent and identity checks.

6. Check permissions. Ask about planning, siting and noise. Listed buildings, conservation areas, flats and leasehold homes may need further checks or consent. Rules vary by nation and property, so the local planning authority should confirm the position.

Use an MCS-certified installer or qualified heating engineer for technical suitability. A planning authority, conservation officer, freeholder or managing agent may need to decide consent issues. Complex VAT terms may need professional tax input.

Key takeaways

• Qualifying fixed installations are zero-rated through 31 March 2027.

• The scheduled rate from 1 April 2027 is 5%, not 20%.

• Equipment sold without installation remains standard-rated.

• Signing a quote before the deadline does not guarantee 0% VAT.

• Deposits, invoices and completion can create different tax points.

• Grants have separate eligibility and deadline rules.

• The contract should state the assumed VAT treatment and delay terms.

Frequently asked questions