0% VAT for Domestic Air Conditioning Systems

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Chancellor scraps the VAT on heat pumps…

Exciting news emerges for the AC industry as the 2022 Chancellor’s Spring Statement reveals that homeowners who have energy saving building solutions installed in their homes, such as heat pumps, no longer need to pay VAT.

The changes will take effect from April 2022 and will last five years, providing benefit to both homeowners and contractors in the industry.

If you’re looking for home air conditioning, 0% VAT means there has never been a better time.

Predicted increase in demand…

With the current hot topic of rising energy prices, and the government’s zero emissions goal for 2050, we predict that this will boost the market for energy saving, low carbon heat pumps that not only offer a viable, cost effective and sustainable heating solution during the winter months but can also provide welcome relief from the soaring summer temperatures.

With low running costs and high efficiency, the purchase of an AC system to heat and cool your home, is a decision that is easy on your pocket and on the planet, as we all have a part to play in helping to reach the UK’s climate goals.

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The rules on installation on energy saving materials…

The rules of qualifying installations have also been simplified considerably alongside the cuts. In the past, systems used to cool were not eligible for the reduced rate. Now, as long as the system can provide heating in addition to cooling to a domestic property, it is eligible for the scheme.

Prior to April 1st 2022, there was a ‘60% test’ in place which has also been abolished. The ‘60% test’ was implemented by HMRC. This would limit the reduced VAT rate where materials exceeded 60% of the total cost charged to the customer.

Resellers of air conditioning units without the installation service must continue to charge 20% VAT.

The scheme does not apply to portable systems and is set to run from April 2022 to March 2027.

You can read the full notice on the government website here.

Are air conditioning systems classed as heat pumps? …

Most air conditioning systems are considered as heat pumps due to the fact they can provide heating and cooling. Otherwise known as air-to-air heat pumps. Modern day gasses (R410a and more recently R22) have higher pressure and produce more heating power. Modern day technology means that air conditioning heating is now extremely efficient. Read more on how air conditioning works here.

What are ESMs?

ESMs is simply an abbreviation of Energy Saving Materials. Energy saving materials are products and/or systems that use as little electricity, gas, etc. as possible, or help to reduce their use. They lower the impact we have on our environment, which is why the government is providing incentives for us to install them. ESM’s come in different forms but they can be divided into groups as follows:

  • Controls for central heating and hot water systems
  • Draught stripping
  • Solar panels
  • Ground source heat pumps
  • Air source heat pumps

The government has recently introduced a zero rate for installation on the following ESMs…

  • Controls for central heating and hot water systems
  • Draught stripping
  • Insulation
  • Solar panels
  • Ground source heat pumps
  • Air source heat pumps
  • Micro combined heat and power units
  • Wood-fuelled boilers
  • Wind turbines
  • Water turbines

Why has 0% VAT for air conditioning installation been introduced?

The government has plans to drastically reduce domestic carbon emissions and this is all part of the wider net zero objective that we have already discussed. They have scrapped the previous complicated VAT rate scheme on certain specified energy saving materials, replaced it with a zero rate of VAT. 

 It is anticipated this money saving move will incentivise homeowners to take-up ESMs such as heat pumps (and this includes most air conditioners).

Can I get a grant to install air conditioning?

The government has introduced grants to encourage homeowners to install low carbon heating systems such as heat pumps, including most air conditioners, through the Boiler Upgrade Scheme (BUS). This scheme will “help property owners overcome the upfront cost of low carbon heating technologies”. This only applies to installations after April 2022.

To find out if your installation meets the criteria for a BUS grant there is more information on the GOV.UK website.

Where to go for AC advice ...

There are many different options to choose from, so it is important that you contact a specialist installer, who can advise you on which type and brand of air conditioner is best for your individual requirements and budget.

Evergreen provide AC services to suit all budgets and applications. For expert advice on installation, maintenance, or emergency repair of an AC system in your home please contact our specialist team.

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[…] heating and cooling solution, and the government are fully endorsing this by introducing a zero-rate of VATfor their […]

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