Can You Get 0% VAT or a Grant for Air Conditioning? The 2026 Rules

The short answer

For a home: a permanently fixed air conditioning unit is usually zero-rated for VAT until 31 March 2027; a reverse-cycle unit that fully replaces fossil-fuel or electric heating can get a £2,500 Boiler Upgrade Scheme grant; and a unit that is not used solely for cooling is usually permitted development on a house. For a business: VAT is charged at 20%, the grant does not apply, and planning depends on the building.

VAT: why most air conditioning counts as a heat pump

HMRC's VAT Notice 708/6, which covers energy-saving materials, lists air source heat pumps among the materials that are zero-rated when installed in residential accommodation. In section 2.15 it says: "HMRC's understanding is that most air conditioning units are air source heat pumps." It adds that fixed air source heat pumps can be reversed to provide cooling in summer as well as heating, and that only units that are permanently fixed — not portable or moveable — qualify.

• Zero rate: from 1 May 2023 to 31 March 2027, for installation in homes.
• From 1 April 2027: the reduced rate of 5% applies.
• Portable units: standard-rated.
• Materials bought without installation: standard-rated — the relief applies to an installed supply.

HMRC also says that where there is doubt, whether a particular product is an air source heat pump depends on the facts, so check the product with your installer if it is unusual.

The £2,500 Boiler Upgrade Scheme grant

GOV.UK lists £2,500 towards an air-to-air heat pump under the Boiler Upgrade Scheme, alongside £7,500 for air source and ground source heat pumps (with an extra £1,500 until March 2027 for homes heated by oil or LPG with no mains gas). The main conditions for the air-to-air grant are:

• the property is residential and in England or Wales;
• the heat pump fully replaces an existing fossil-fuel system, such as an oil or gas boiler, or electric heating such as storage or panel heaters;
• the home is not a new build, unless it is a self-build;
• the installation has not been funded by another public grant; and
• the installer is MCS certified and applies for the grant on your behalf.

The word that catches people out is fully. A bedroom unit added alongside a gas boiler does not replace the heating, so it does not qualify.

Planning permission for air conditioning on a house

The General Permitted Development Order was amended from 29 May 2025 (S.I. 2025/560). Class G of Part 14 now covers an air source heat pump on a house provided it "is not solely used for the purpose of cooling" — so a reverse-cycle unit that also heats can be permitted development. The main limits:

• one outdoor unit on a terraced or semi-detached house, two on a detached house;
• an outdoor unit of no more than 1.5 cubic metres;
• compliance with the MCS 020 a) planning standard, including a noise limit of 37.0 dB(A) at the assessment position outside a neighbour's window or door;
• not on a pitched roof, and at least a metre from the edge of a flat roof;
• not on a listed building or within its curtilage; and
• in a conservation area, not on a wall or roof fronting a highway, or nearer a highway than the house.

In Cornwall that last point matters in historic centres. In Truro, for example, the conservation area takes in Lemon Street, and many houses there and in Ferris Town are listed — see air conditioning in Truro for how that plays out on real streets.

Businesses: shops, offices and cafés

The VAT relief and the Boiler Upgrade Scheme are residential, so air conditioning in business premises is standard-rated for VAT and there is no grant under the scheme. The householder permitted development rules above apply to houses, so the planning position for a shop, office or café depends on the building and its use and needs checking case by case. Commercial spaces with suspended ceilings are where cassette units come into their own — see our page on ceiling cassette air conditioning Cornwall for how cassettes compare with wall, multi-split and ducted systems.

Cooling-only versus heat-and-cool

For a home, the rules point one way. A cooling-only unit does not get householder permitted development rights and cannot replace your heating for the grant. A reverse-cycle unit can do both jobs — which is also why it is the version HMRC treats as an air source heat pump. If you want the system to become the main heating, it has to be sized for the winter heating load, not just summer cooling.

Putting it together

	Home, reverse-cycle, replacing electric heating	Home, added alongside a boiler	Shop or office
VAT	0% to 31 March 2027	0% to 31 March 2027	20%
£2,500 grant	Eligible, subject to conditions	No — heating not fully replaced	No
Householder permitted development	Usually yes	Usually yes	Not applicable — check the building

If you are replacing oil or LPG central heating with radiators, compare an air-to-water heat pump as well: the Boiler Upgrade Scheme in Cornwall pays up to £9,000 towards one.