Does a/c installed in houses attract VAT?

The first thing to say is the a/c installed in dwellings (houses, flats, apartments etc) DOES attract VAT - but that rate is 0%

Wait, what? ok, Vat is cahrged at three bands - 0%, 5% and 20%. Items like food and children's clothes don't attract VAT; they are VAT-free. Now that bit is out of the way;

The legislation which relates to this is HMRC VAT Notice 708/6 – Energy-saving materials and heating equipment.

This specifies that the driver of whether the rate is 0% or 20% is not the customer’s status , but that of the property.

Although the two will largely be the same, the distinction is between individuals buying AC units for their homes (0%) and businesses buying AC units for their business premises (20%).

So, if the property is one of the following then the 0% rate applies:

·         houses, blocks of flats or other dwellings

·         armed forces residential accommodation

·         children’s homes

·         homes providing care for the elderly, disabled people, or people who suffer or have suffered from drug or alcohol dependency or mental disorder

·         hospices

·         institutions that are the sole or main residence of at least 90% of their residents

·         monasteries, nunneries and similar religious communities

·         residential accommodation for students or pupils

·         self-catering holiday accommodation

·         caravans used as a place of permanent habitation (such as a park home or static caravans sited on a permanent residential caravan park)

·         houseboats that are designed or adapted for permanent habitation and have no means of self-propulsion, or other boats which are used as a person’s sole or main residence, such as canal boats and Dutch barges, on which the boat owner pays Council Tax or domestic rates

However, it does not apply to hospitals, prisons, hotels or pubs.

The 0% rate has also been extended from 1 February 2024 to buildings used for a relevant charitable purpose that is not in the cause of business, but does apply to community properties such as village halls, but only where the main use is charitable and/or providing recreational facilities for the local community.

One additional point; please remember that the 0% rate is planned to come to an end on 31 March 2027, when it will revert to the reduced rate of VAT at 5%. So if you take one thing away from this blog.... get your aircon installed before 31 March 2027 and save the 5% VAT!

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