Yes. Under the UK VAT rules currently in force, qualifying permanently installed domestic air conditioning systems that are treated as air source heat pumps are zero rated until 31 March 2027. From 1 April 2027, those qualifying installations are scheduled to move to the reduced VAT rate of 5%. They are not currently scheduled to move to the standard 20% rate.
At a Glance
If you are short on time, here is what you need to know.
What is the VAT rate on qualifying domestic air conditioning today? 0%.
When does the current temporary zero rate end? 31 March 2027.
What is scheduled to happen from 1 April 2027? Qualifying installations move to the reduced VAT rate of 5%.
Will domestic air conditioning automatically become subject to 20% VAT? No. Under the rules currently in force, qualifying installations move to 5% rather than the standard 20% rate.
Does every air conditioner qualify? No. HMRC says qualifying air source heat pumps must be permanently fixed rather than portable or moveable.
Can the rules change before April 2027? Yes. Tax policy can always be changed by future legislation, so this article reflects HMRC guidance and legislation in force when reviewed.
Reading time: 11 to 13 minutes
Last reviewed: August 2026
Why Is Domestic Air Conditioning Currently Zero Rated?
The answer comes from the way modern air conditioning works.
Most residential split air conditioning systems do not simply provide cooling.
They can reverse their refrigeration cycle and provide heating as well.
That makes them air source heat pumps.
HMRC specifically states that fixed air source heat pumps can be reversed to provide cooling in summer and heating during colder periods.
More importantly, HMRC says its understanding is that most air conditioning units are air source heat pumps.
This is why qualifying residential installations can benefit from the VAT relief available for energy saving materials.
The temporary zero rate was introduced for qualifying installations and is currently scheduled to remain in place until 31 March 2027.
What Exactly Changes on 1 April 2027?
The VAT relief itself is not scheduled to disappear.
The rate changes.
Until 31 March 2027:
Qualifying installation: 0% VAT
From 1 April 2027:
Qualifying installation: 5% VAT
HMRC VAT Notice 708/6 states explicitly that installations of qualifying energy saving materials revert to the reduced VAT rate of 5% from 1 April 2027.
This is an important distinction.
We have already seen homeowners assume that the end of the zero rate means air conditioning will suddenly attract the normal 20% VAT rate.
That is not what the current rules say.
The scheduled change is from 0% to 5%.
Does This Apply to Air Conditioning as Well as Traditional Heat Pumps?
Yes, where the system meets the qualifying conditions.
HMRC guidance specifically discusses air conditioning within its section on air source heat pumps.
It explains that fixed air source heat pumps can provide cooling as well as heating and states that most air conditioning units are understood to be air source heat pumps.
That is why terminology can be misleading.
A homeowner may think they are buying:
“An air conditioner.”
From a technical and VAT perspective, they may actually be having a reversible air source heat pump installed.
The cooling function does not automatically prevent the equipment qualifying.
How Much Difference Will 5% VAT Actually Make?
The easiest way to understand the change is through simple examples.
Assume the underlying installation price remains exactly the same.
Example 1
Installation price before VAT:
£1,500
At 0% AT:
£1,500
At 5% VAT:
£1,575
Difference:
£75
Example 2
Installation price before VAT:
£5,000
At 0% VAT:
£5,000
At 5% VAT:
£5,250
Difference:
£250
Example 3
Installation price before VAT:
£10,000
At 0% VAT:
£10,000
At 5% VAT:
£10,500
Difference:
£500
HMRC confirms that the current reduced VAT rate is 5% and that a price excluding VAT can be multiplied by 1.05 to calculate a price including the reduced rate.
These examples are illustrations only.
Actual installation prices can change for many reasons unrelated to VAT, including equipment costs, labour, materials and the complexity of the installation.
ClimateWorks Insight
The VAT change matters more as the size of the project increases.
For somebody installing one straightforward bedroom system, the difference may be relatively modest.
For a homeowner installing air conditioning throughout four or five rooms, the increase becomes more noticeable.
That does not mean people should rush into an installation purely because of tax.
It does mean that homeowners already planning a project should understand that the current zero VAT treatment is temporary.
Should I Install Air Conditioning Before April 2027 to Avoid the 5% VAT?
If you already intend to install air conditioning, the current VAT position is certainly worth considering when deciding your timing.
But VAT should not be the only reason you proceed.
A properly installed air conditioning system can remain part of your home for many years.
The important questions are still:
- Do you genuinely need heating or cooling?
- Which rooms should be treated?
- Is the equipment correctly sized?
- Is the proposed installation right for your property?
- Are you comfortable with the overall cost?
If the answer to those questions is already yes, completing a qualifying installation while the zero rate remains available could reduce the amount you pay compared with the same net price after April 2027.
Does Paying a Deposit Before April 2027 Guarantee 0% VAT?
Do not assume that it does.
VAT timing rules can become more complicated where invoices, deposits and completion dates fall on different sides of a VAT rate change.
HMRC explains that receiving an advance payment or issuing certain VAT invoices can create an earlier tax point, while special rules also exist where VAT rates change.
This means a homeowner should not rely on a simple rule such as:
“I paid my deposit in March, therefore the whole installation must be zero rated.”
The correct VAT treatment will depend on the circumstances and the tax point rules applicable to the transaction.
As April 2027 approaches, installers should ensure their invoicing and accounting treatment follows current HMRC guidance.
Does the 5% Apply to the Equipment and Installation?
It can when the installer supplies and installs the qualifying equipment as part of the qualifying installation.
HMRC says the relief applies both to the installation service and to qualifying energy saving materials supplied by the person installing them.
For example, where an installer supplies the heat pump equipment and installs it in qualifying residential accommodation, the supply can fall within the relief.
This is different from simply buying equipment from a retailer.
What If I Buy the Air Conditioning Equipment Myself?
This is an important distinction.
HMRC says that energy saving materials supplied without installation are standard rated.
That means buying an air conditioning unit independently from a retailer does not automatically give you the reduced VAT rate simply because the equipment could qualify as an air source heat pump once installed.
The current standard VAT rate is 20%.
However, HMRC also confirms that installation services themselves can qualify where a customer has purchased qualifying equipment directly and then employs a business to install it in qualifying residential accommodation.
The VAT treatment of the equipment and the installation can therefore be different.
Does Portable Air Conditioning Qualify?
No, not under this particular air source heat pump relief.
HMRC states that qualifying air source heat pumps must be permanently fixed and must not be portable or moveable.
This creates an important distinction between:
Permanently installed split air conditioning
and
Portable air conditioning appliances
They should not automatically be treated the same way for VAT.
Does the Relief Apply to Flats?
Yes, residential accommodation covered by the relief includes houses, blocks of flats and other dwellings.
Whether you can physically install air conditioning in a flat is a separate question.
Leasehold restrictions, freeholder consent, planning considerations and outdoor unit locations can all affect what is possible.
But living in a flat does not by itself prevent qualifying installed equipment from falling within the residential VAT relief.
What About Commercial Air Conditioning?
This article concerns domestic installations.
The residential energy saving materials relief should not simply be applied to ordinary commercial air conditioning installations.
HMRC's residential definition specifically covers qualifying residential accommodation and also identifies establishments such as hotels and inns as outside that residential category for this relief.
Commercial projects therefore need their own VAT treatment considered separately.
Could the Government Extend the 0% Rate?
It could.
Tax legislation can change.
However, homeowners should distinguish between what might happen and what the current law and HMRC guidance actually say.
As of August 2026, HMRC states that qualifying installations revert to 5% VAT from 1 April 2027.
Until the Government announces and legislates otherwise, that is the position homeowners and installers should plan around.
A Typical Hampshire Homeowner Example
Imagine a homeowner in Hampshire considering air conditioning for three bedrooms.
They have already decided that the rooms regularly overheat and intend to install a permanent multi room system.
If the project qualifies and is supplied at £5,000 before VAT, completion while the zero rate applies would mean a £5,000 total based purely on that net figure.
At the scheduled 5% rate, the same £5,000 net installation would become £5,250.
The important point is not that every homeowner should install immediately.
It is that someone already planning to proceed should understand the financial impact of the scheduled VAT change.
A Typical Berkshire Single Room Example
Consider a homeowner in Berkshire installing one permanent bedroom system at an illustrative net cost of £1,500.
The difference between 0% and 5% VAT is £75.
That may not be enough to determine whether the project goes ahead.
But it is still useful information when deciding whether to install before or after April 2027.
Good purchasing decisions come from knowing the facts rather than discovering the tax change after receiving a quotation.
Common Misunderstandings About the 2027 VAT Change
“Domestic air conditioning is becoming subject to 20% VAT”
Not according to the rules currently in force.
Qualifying installations are scheduled to move from 0% to 5%.
“Every air conditioner qualifies”
No.
HMRC requires qualifying air source heat pumps to be permanently fixed rather than portable or moveable.
“I can buy the unit online at 0% VAT”
Not generally.
A supply of qualifying energy saving materials without installation is standard rated.
“The zero rate definitely ends whatever happens politically”
The current legislation says it ends on 31 March 2027.
Future governments can change tax legislation, so the position should be checked again closer to the date.
Dr Julian Carter's Expert Commentary
“The most important point for homeowners is that this is currently a change from zero VAT to 5% VAT, not zero to 20%. Modern fixed air conditioning is often treated as an air source heat pump because the same refrigeration system provides heating and cooling. Anyone already planning an installation should understand the April 2027 change, but equipment selection and installation quality should still come before tax when making a long term decision.”
Dr Julian Carter
Technical & Compliance Director
ClimateWorks
How the ClimateWorks Process Works
Step 1. Get Your Online Guide Price
Use the ClimateWorks online quotation tool to receive an initial guide price for the rooms you are considering.
This helps you understand the likely investment before arranging a survey.
Step 2. Request a Site Survey
If the guide price is suitable, request a site survey.
We confirm the system design, equipment, indoor and outdoor unit locations, pipe routes, electrical requirements and installation details.
Step 3. Receive Your Final Price
Following the survey, you receive the final quotation.
You can then accept or decline it.
Where a qualifying installation is entitled to VAT relief, the applicable VAT treatment will be shown in accordance with the rules in force at the relevant time.
Frequently Asked Questions
Is domestic air conditioning currently VAT free?
Qualifying permanently installed domestic air conditioning systems treated as air source heat pumps currently benefit from a temporary 0% VAT rate when the relevant conditions are met.
When does 0% VAT end?
The temporary zero rate is currently scheduled to end on 31 March 2027.
What VAT applies from 1 April 2027?
Qualifying installations are currently scheduled to move to the reduced rate of 5%.
Will home air conditioning become 20% VAT?
Not where the installation continues to qualify for the energy saving materials reduced rate.
Does portable air conditioning qualify?
No. HMRC says qualifying air source heat pumps must be permanently fixed and not portable or moveable.
Does a wall mounted split air conditioner qualify?
Most permanently installed reversible split systems are likely to fall within HMRC's understanding of air source heat pumps, although HMRC says individual products depend on the facts of each case.
Can the VAT rules change before April 2027?
Yes. Tax legislation can change. This guide reflects HMRC guidance in force when reviewed in August 2026.
References
HM Revenue & Customs
VAT Notice 708/6, Energy Saving Materials and Heating Equipment. This is the principal HMRC guidance covering the temporary zero rate, the scheduled return to 5% and the treatment of air source heat pumps.
HM Treasury
Extension of VAT Energy Saving Materials Relief. Government policy documentation confirms that qualifying residential installations revert to the reduced rate of 5% after the temporary zero rate ends.
UK Legislation
The Value Added Tax Installation of Energy Saving Materials Order 2024 confirms the wider legislative framework and the planned return to the reduced rate after the temporary zero rating period.
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 installing modern heating and cooling systems.
.png){kind=small}
