Not all contractors seem aware of this in my experience.  A heat pump or insulation project should qualify for 5% VAT, including the cost of enabling building works, provided that material costs do not exceed 61% of the total project cost.  If materials are greater than 60%, you still get 5% on the labour only.  If you’re over 60 or on certain benefits, this 60% test doesn’t apply, and you qualify for 5% whatever.

If you’re using several contractors as well as your heating engineer (e.g.  digger driver to dig trenches for the ground source piping, or a builder to alter a room to accommodate the heat pump), speak to your heating engineer about acting as main contractor.  The other contractors will invoice at 20% VAT to your heating engineer who will then bill that work on to you at only 5%.  This obviously involves admin and temporary cashflow costs for the heating engineer so expect a small charge to cover it – e.g. 2.5% commission.

The project must be primarily involved with installing “energy saving materials”, whether this is insulation or renewable heating.

5% VAT is also available if you’re doing work that is primarily designed to improve the insulation of your house.

VAT notice 708/6 – link