What smart technology is VAT exempt?

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It seems too good to be true but it is — some smart technology is VAT free.

You  may already know that VAT can’t be charged on labour or building materials for new-builds.

However, until recently there was a big caveat: full VAT had to be paid on all free standing ‘appliances’ (sometimes referred to as unincorporated items), which included lighting and heating systems.

As you can imagine, this added significant cost to building projects.

But, in last year’s Spring Budget the Chancellor announced some surprisingly good news from the taxman. From April 1st 2022 the VAT rate applicable to the installation of energy saving materials and technologies will be reduced to 0%. All in the name of getting the country to net zero.

It’s a welcome move from us. Our industry has been banging on about the green benefits of smart technology for years. Now that the government has accepted this type of tech as the ‘norm’ for modern households any new build or renovation project is eligible for reduced VAT on labour, building costs, and smart home integrations.

Not everything smart is exempt (we knew there was a catch) so our handy guide will help you make sense of the new rules.

New VAT rule for smart homes

The new 0% VAT rule shows a shift in attitude. Energy-saving technology is no longer a ‘nice to have’ but a must, particularly in light of the UK Government’s net zero strategy.

That means you’ll only pay between 0% – 5% VAT when certain energy-saving products are installed in your home. You’ll also qualify for VAT exemption on the labour it takes to install them.

Speaking of, you can’t buy or install these energy-saving products yourself. To qualify a trained installer has to do it for you. A win-win really; you get VAT relief on a cosier, more energy efficient home and peace of mind knowing your smart systems have been professionally installed.

Where 5% VAT is due the onus is on the installer to charge you the correct rate. (This rate differs depending on whether you’re in Great Britain or Northern Ireland).

Remember, not all products or installations are eligible. We’ll get to those shortly.

VAT rates

To be crystal clear, if you’re in Great Britain you’ll pay 0% VAT on:

  • certain energy-saving products supplied by your installer
  • the cost of all work to install those products in your home

The 0% VAT is in effect until 31st March 2027. It’ll then be a further 5 years before the VAT-free rate ends.

2027 might seem a long way off but don’t sleep on a golden opportunity. Building projects take time, sometimes a lot of time! Now is the moment to seize advantage of the government’s generosity.

Which products qualify?

Ok, the part you really want to know. What smart technology counts as a VAT-exempt, energy saving product?

Here’s a list from HMRC of products that qualify for lower or zero-rate VAT:

  • central heating and hot water controls
  • draught stripping, for example insulation fixed around windows and doors
  • to reduce draughts
  • insulation on walls, floors, ceilings and lofts
  • solar panels
  • ground-source heat pumps
  • air-source heat pumps
  • micro combined heat and power units
  • wood-fuelled boilers
  • wind turbines (Great Britain only)
  • water turbines (Great Britain only)

Energy products you still pay 20% on

20% VAT is charged for:

  • heating equipment that is not funded through an energy efficiency grant
  • energy efficient boilers
  • secondary or double glazing
  • low emission glass
  • energy efficient fridge freezers
  • wind turbines (Northern Ireland only)
  • water turbines (Northern Ireland only)

What about smart lighting?

Good news — HMRC’s bright idea extends to smart lighting.

Since last year, the VAT Notice has been updated to include:

  • light
  • heat
  • ventilation

Even better, light fittings are also included.

That means:

  • chandeliers
  • outside lights
  • any “intelligent lighting”

are eligible for 0% or reduced rate VAT.

We might just do a happy dance!

Bear in mind that although the government now views smart lighting  as the ‘norm’ for new-builds, remote control handsets and colour touch screens aren’t part of the VAT exemption.

Ready to get smart?

Hopefully our VAT guide has given you the green light to upgrade your new-build with energy-saving smart technology.

At John Ross, our professional installers are passionate about improving homeowner’s lives with smart technology. We’ve seen intelligent light and heating systems transform the lives of customers. At the press of a button you can control the lights and temperature in every room of your property to create a more comfortable, safe, and energy-efficient home.

And now that the VAT man recognises smart lights and heating as the “norm” there’s no better time to give us a bell. Simply call 01738 566 566 or use our contact form to make an enquiry.

(Psst — using the contact form means you’ll automatically receive our Guide To Smart Living. All our best tips, completely free. Result!)

For more guidance around VAT exemption you can read Notice 708 in full on HMRC’s website. If you’re still unsure what elements of your project are exempt from VAT don’t hesitate to get in touch. We’re here to keep you informed on all things smart living.

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