As well as cutting VAT on heat pump installations from 5% to zero, the government has also considerably simplified the rules about which types of heat pump qualify. Previously, those used for cooling were not eligible for the reduced tax rate, but the only rule that applies now is that the installation must be capable of heating the home.
“The cut in VAT is a welcome incentive for business and domestic users, but equally helpful is the simplification of what had been unnecessarily complex tax rules around heat pumps,” said BESA’s head of technical Graeme Fox.
“Previously, air-source heat pumps of the split air conditioning type had been specifically ruled out from the reduced VAT scheme,” he explained. “This rule was amended last year, but people were still confused. So, following lengthy talks between the BESA and HMRC, the guidance has been updated to clarify that air source reverse cycle heat pump air conditioners can be treated in the same way as monobloc heat pumps for VAT purposes.”