3 easy ways to make the most of the chancellor’s energy-efficient VAT cut

In the 2022 spring statement, chancellor Rishi Sunak unveiled plans to help tackle the rising cost of energy in the UK.

On top of cutting fuel duty by 5p a litre, Sunak announced a key measure designed to help homeowners maximise their energy efficiency while cutting down on household bills.

From April 2022, the chancellor implemented a total reduction in VAT for energy-efficient home installations until 2027.

If you have become concerned about how rising energy costs might affect you, you aren’t alone. Energy regulator Ofgem increased its price cap by 54% in April, leaving many homeowners to shoulder a significant increase in their energy bills.

What’s more, according to The Money Edit, Ofgem are forecast to increase the price cap by a further 42% in October 2022.

So, if you are searching for ways to cut costs this year, it could be that the chancellor’s VAT reduction for energy-efficient home installations may benefit you in the long term.

Here are three ways to make the most of this price cut.

1. Install solar panels on your property

Solar panels are an energy-efficient home improvement that could help eco-boost your home for years to come.

Fortunately, solar panels have become increasingly accessible in recent years. According to IRENA research published by Solar Power Portal, solar panel prices have already decreased by 82% in the last decade, and around 970,000 UK homes were partly or fully powered by solar energy.

When it comes to today’s prices, in 2021, Solar Guide reports that the average cost of a residential solar panel installation was between £6,000 and £7,000 – 60% cheaper than in 2010.

Now that the VAT on solar panel installations has been cut, Sunak claims you could shave up to £1,100 off the average price, according to an Evening Standard report. What’s more, the Treasury claims homeowners could save up to £300 a year on their energy bills once the panels are installed.

Of course, the price of solar panels will depend on various contributing factors, including:

• The number of panels you would like to install
• The direction your home faces in
• The prices stated by your local solar panel installation companies
• Whether you need to acquire planning permission or other documentation to install solar panels
• Demand and availability in your area.

If you are searching for a specific price for solar panels on your home, it may be wise to contact a provider directly. For guidance on affording solar panels, contact your financial planner.

2. Invest in new loft insulation

As energy prices are set to rise again in October, maximising the heat efficiency of your home before this happens could be highly constructive.

Luckily, insulation has been included in the chancellor’s total reduction in VAT for energy-efficient installations.

Research published by Which? claims that loft insulation could reduce your annual energy bills by £315.

Even if your home already has loft insulation installed, if it has been in place for a number of decades, it may be worth considering a replacement this summer.

According to Checkatrade, the average cost of professionally-installed loft insulation is between £400 and £600, plus VAT. Now that the VAT on loft insulation stands at 0%, iNews reports that homeowners could save up to £160 on installation.

So, it could be wise to check on and update the insulation in your loft, or in other parts of your home, before the cold weather sets in this autumn.

3. Switch to a heat pump

Finally, in order to potentially mitigate your energy costs this autumn and winter, you could invest in a heat pump. Heat pumps can be installed at a rate of 0% VAT until 2027.

Heat pumps are considered “energy-efficient” because they produce more heat than the electricity they use. For example, a pump may use one unit of electricity to produce three times as much heat.

There are two popular types of heat pump: a ground pump and an air pump.

According to GreenMatch, if you used a heat pump instead of a gas boiler, a ground source pump could reduce your energy bills by 26%, whereas an air source pump could cut them almost in half.

When it comes to installation, GreenMatch reports they can cost between £8,000 and £20,000 to install. Now that VAT has been reduced, iNews estimates that your heat pump installation bill could be cut by up to £2,000.

While this may seem a high installation cost, a heat pump could be a worthy investment that might reduce your monthly outgoings significantly for years to come.

Get in touch

If you are looking to invest in an energy-efficient home installation this summer, it could be beneficial to discuss this move with your financial planner.

We can help you budget for these installations, and provide guidance on navigating the cost of living crisis on the whole.

Email enquiries@prosserknowles.co.uk or click here to request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.