From 1 April 2027, qualifying installations of permanently fixed air source heat pumps in residential accommodation are scheduled to attract the reduced VAT rate of 5 percent. HMRC says most air conditioning units are air source heat pumps, but the equipment must be permanently fixed rather than portable or moveable. Supply and installation by the installer can qualify, while equipment sold on its own is normally standard rated.
At a Glance
Do permanently installed air conditioners qualify? Many do, provided they meet HMRC's definition of a qualifying permanently fixed air source heat pump.
Does the system need to provide heating? The air source heat pump definition is important. HMRC specifically recognises fixed reversible units that provide cooling and heating.
Do portable air conditioners qualify? No. HMRC says qualifying air source heat pumps must not be portable or moveable.
Does equipment bought separately qualify for 5 percent? Equipment supplied without installation is normally standard rated.
Can the installer's supply and installation qualify together? Yes, where the installer supplies and installs qualifying energy saving materials in qualifying residential accommodation.
Does the relief apply to houses and flats? Yes.
Does the same rule automatically apply to commercial offices? No.
Reading time: 12 to 14 minutes
Last reviewed: August 2026
Why Air Conditioning Can Qualify as an Energy Saving Material
To understand the VAT treatment, you first need to understand the technology.
A modern residential split air conditioner usually has:
- An indoor unit
- An outdoor unit
- Refrigeration pipework
- Controls
- The ability to provide cooling
- In many cases, the ability to reverse its operation and provide heating
That final point is important.
When the refrigeration cycle reverses, the system extracts heat from outdoor air and transfers it into the room.
It is therefore operating as an air source heat pump.
HMRC recognises this directly.
Its guidance states that fixed air source heat pumps can be reversed to provide cooling and that most air conditioning units are understood to be air source heat pumps.
That is the foundation for the VAT relief.
Rule 1. The Air Conditioning Needs to Qualify as an Air Source Heat Pump
Not every product containing the words “air conditioning” automatically falls within the relief.
HMRC says the treatment of a particular product depends on the facts of the case.
The important question is whether the equipment meets the relevant characteristics of an air source heat pump.
For the typical reversible residential split systems installed by specialist air conditioning companies, this will often be straightforward.
But tax treatment should be based on the equipment itself rather than simply the name used in a brochure.
Rule 2. It Must Be Permanently Fixed
This distinction is extremely important.
HMRC states that only air source heat pumps that are permanently fixed and are not portable or moveable qualify as energy saving materials under this relief.
A professionally installed split system normally involves equipment permanently attached to the building.
A portable appliance on wheels with a flexible exhaust hose is completely different.
That is why the VAT position for permanent and portable air conditioning should not be confused.
ClimateWorks Insight
The VAT rules actually highlight one of the biggest differences between permanent and portable cooling.
To a homeowner, both products may be described as:
“Air conditioning.”
Technically they are very different solutions.
A fixed reversible split system is part of the building and functions as an air to air heat pump.
A portable appliance remains a moveable consumer product.
The tax treatment reflects that distinction.
Rule 3. The Installation Must Be in Qualifying Residential Accommodation
The energy saving materials relief applies to installations in qualifying residential accommodation.
HMRC's definition includes:
- Houses
- Blocks of flats
- Other dwellings
- Student residential accommodation
- Certain residential care settings
- Qualifying permanent residential caravans
- Certain permanently inhabited houseboats
- Self catering holiday accommodation
HMRC separately states that hotels, inns, hospitals, prisons and similar establishments do not fall within this residential category for the relief.
For most homeowners having air conditioning installed in their own house or flat, the residential requirement is therefore relatively straightforward.
Rule 4. Supply and Installation Can Be Treated Differently From Supply Only
This is one of the most useful parts of the HMRC guidance for homeowners.
Imagine two different purchases.
Scenario 1
You employ an air conditioning contractor to supply and install a qualifying fixed air source heat pump in your home.
HMRC says the relief can apply to both the qualifying material and the installation where the installer supplies the equipment as part of the installation.
Scenario 2
You purchase the air conditioning equipment from a retailer but do not purchase installation from them.
HMRC says a supply of energy saving materials without installation is standard rated.
The current standard VAT rate is 20 percent.
This can produce a significant difference in how VAT appears across the overall project.
What If I Buy the Equipment and Employ an Installer Separately?
HMRC specifically gives an example where a customer buys qualifying energy saving materials directly from a retailer and then employs another business to install them.
The installation service can qualify for the energy saving materials relief even though the retail equipment purchase itself is standard rated.
That does not necessarily mean buying equipment separately is the best way to procure an air conditioning system.
Warranty responsibility, equipment compatibility, design and commissioning all need consideration.
But the VAT distinction is important.
Rule 5. Additional Work Does Not Automatically Receive the Same VAT Rate
An air conditioning installation can involve more than the indoor and outdoor units.
There may be:
- Electrical work
- Trunking
- Brackets
- Pipework
- Drainage
- Access work
- Building alterations
Whether associated work follows the same VAT treatment can depend on whether HMRC considers everything one overall supply or several separate supplies.
HMRC says that where other goods and services are supplied alongside energy saving materials, the contractor must determine whether they form a single supply or multiple supplies.
Factors can include whether there is one overall price, whether the work is advertised as one package and whether ancillary elements simply enable the customer to enjoy the principal installation.
This means homeowners should be cautious about assuming every unrelated piece of building work carried out at the same time automatically receives 5 percent VAT.
Does Electrical Work Qualify?
There is no sensible universal answer without knowing how the work is supplied.
Electrical work that is genuinely part of the installation may need to be considered as part of the overall VAT analysis.
A completely separate electrical project is a different matter.
The same principle applies to building works.
Tax treatment depends on the nature of the supply rather than simply whether the work happens on the same day as the air conditioning installation.
Installers should apply HMRC guidance to the actual contractual arrangement.
What About a Single Split Bedroom System?
Consider a typical permanent bedroom installation.
There is one wall mounted indoor unit.
There is one outdoor unit.
The equipment provides heating and cooling.
Both units are permanently installed.
The contractor supplies and installs the complete system in a private home.
This is the type of installation that fits most naturally with HMRC's description of a qualifying permanently fixed air source heat pump.
From 1 April 2027, assuming the rules remain as currently legislated, a qualifying installation would move to 5 percent VAT.
What About Multi Split Air Conditioning?
The number of indoor units does not inherently remove the air source heat pump principle.
A multi split system may use one outdoor unit connected to several permanently installed indoor units.
Provided the equipment and installation meet the qualifying requirements, the fact that several rooms are being served does not itself mean the system suddenly becomes ordinary portable air conditioning.
The actual installation still needs to be considered on its facts.
What About Ducted Home Air Conditioning?
The same principle can apply to permanently installed ducted residential air conditioning.
Again, the question is not whether the indoor unit is visible.
It is whether the equipment and installation meet the relevant requirements for a qualifying energy saving material.
Ducted systems are permanently integrated into the property and may provide reversible heating and cooling.
The particular product and installation should still be checked rather than assuming qualification solely because it is described as ducted air conditioning.
What About Portable Units?
Portable air conditioning is much clearer.
HMRC says qualifying air source heat pumps must be permanently fixed and not portable or moveable.
A portable air conditioner bought from a retailer is therefore not in the same VAT category as a qualifying professionally installed fixed heat pump.
That is an important distinction for homeowners comparing prices.
A £500 portable appliance and a £1,500 fixed installation should not simply be compared as though the VAT treatment, equipment, performance and installation are equivalent.
They are different products.
Do Flats Qualify?
A flat is still residential accommodation for the purposes of the energy saving materials relief. HMRC specifically includes blocks of flats and other dwellings.
The bigger challenge with flats is usually permission.
Depending on the property, you may need:
- Freeholder approval
- Managing agent approval
- An acceptable outdoor unit position
- Compliance with lease conditions
- Potential planning consideration
Those issues affect whether the installation can proceed.
They do not automatically change a flat into a commercial property for VAT purposes.
What About Garden Rooms?
Garden rooms require more care.
If an air conditioning system is being installed in or within the curtilage of qualifying residential accommodation, the particular circumstances should be considered against HMRC's rules.
The tax treatment should not be assumed solely because the customer describes the structure as a garden office or garden room.
If there is uncertainty around the status of a particular building or installation, the contractor should confirm the correct VAT treatment.
This is one of the areas where careful advice is more valuable than making broad online promises.
What About Commercial Air Conditioning?
Commercial installations should not simply be given the domestic energy saving materials rate.
Ordinary offices, warehouses, shops and other business premises are not the same as qualifying residential accommodation.
The current standard VAT rate is 20 percent unless another specific VAT relief applies.
That means ClimateWorks may quote one VAT treatment for a homeowner and a completely different treatment for a commercial client even where similar air conditioning equipment is being installed.
The building use matters.
Why This Distinction Will Matter More From April 2027
While qualifying residential installations remain at 0 percent VAT, many homeowners simply see the final price and do not think about the underlying tax rules.
Once 5 percent VAT starts appearing on qualifying quotations, questions are likely to increase.
Why is this installation 5 percent?
Why is that portable unit 20 percent?
Why is my commercial office 20 percent?
Why did the equipment I bought online have 20 percent VAT?
These are reasonable questions.
The answer is that VAT is determined by the nature of the supply, the equipment, the installation and the type of property.
The word “air conditioning” alone does not determine the tax rate.
Common VAT Mistakes Homeowners Could Make
Assuming Every Air Conditioner Gets 5 Percent VAT
It does not.
The qualifying conditions matter.
Assuming Portable and Permanent Systems Are Taxed the Same Way
They are not automatically treated the same.
Assuming Buying the Equipment Yourself Saves VAT
Equipment supplied without installation is normally standard rated.
Assuming Every Piece of Additional Building Work Gets 5 Percent
Other works need to be considered under HMRC's single supply and multiple supply rules.
Assuming Commercial Air Conditioning Gets the Same Relief
Ordinary commercial installations are different from qualifying residential installations.
Dr Julian Carter's Expert Commentary
“The phrase domestic air conditioning is not enough on its own to determine VAT. The important factors are what the equipment actually is, whether it is permanently installed and where it is being installed. HMRC explicitly recognises that most fixed reversible air conditioning is air source heat pump technology, which is why qualifying residential installations can benefit from the reduced rate. Portable appliances and equipment only purchases are a different proposition.”
Dr Julian Carter
Technical & Compliance Director
ClimateWorks
How the ClimateWorks Process Works
Step 1. Get Your Online Guide Price
Start with the online quotation tool on the ClimateWorks website.
This provides a guide price based on the rooms and system you are considering.
Step 2. Request a Site Survey
If the guide price meets your expectations, request a site survey.
We then confirm the equipment, installation design and practical requirements.
Step 3. Receive Your Final Quotation
Following the survey, you receive a final quotation to accept or decline.
The appropriate VAT treatment is applied according to the nature of the installation and the tax rules in force at the relevant time.
Frequently Asked Questions
Does all domestic air conditioning qualify for 5 percent VAT after April 2027?
No. The equipment and installation need to meet the qualifying requirements.
Does a permanently installed split air conditioner qualify?
HMRC says most air conditioning units are air source heat pumps and recognises fixed reversible equipment providing heating and cooling. Individual products must still be considered on their facts.
Does portable air conditioning qualify?
No. HMRC specifies that qualifying air source heat pumps must be permanently fixed rather than portable or moveable.
What VAT applies if I buy the unit myself?
Equipment sold without installation is normally standard rated. The current standard VAT rate is 20 percent.
Can installation labour still qualify if I bought the equipment?
HMRC says installation services can qualify where the customer purchased qualifying materials separately and then employs a business to install them in qualifying residential accommodation.
Does a multi split qualify?
Potentially, yes. Qualification depends on the equipment and installation meeting HMRC's requirements rather than simply the number of indoor units.
Does a flat qualify as residential accommodation?
Yes. HMRC includes blocks of flats and other dwellings within its definition of residential accommodation.
Is commercial air conditioning 5 percent VAT?
Ordinary commercial installations do not automatically qualify for the residential energy saving materials relief.
References
HM Revenue & Customs
VAT Notice 708/6 provides the principal guidance on energy saving materials, qualifying air source heat pumps, permanent installation, residential accommodation and the difference between installation and equipment only supplies.
HM Treasury
Government policy documentation confirms that the temporary zero rate is scheduled to revert to the 5 percent reduced rate after 31 March 2027.
UK Government VAT Rates
Current government guidance confirms the standard VAT rate is 20 percent and the reduced rate is 5 percent.
Author Bio
Dr Julian Carter is Technical & Compliance Director at ClimateWorks and specialises in residential air conditioning, air to air heat pumps and indoor comfort. Drawing on practical experience across Hampshire, Berkshire and Surrey, Dr Carter provides evidence based guidance to help homeowners understand the technical, financial and practical considerations involved in modern heating and cooling installations.
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