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Extension of VAT zero rates in Autumn Statement


Published: 22 Nov 2023 Update History

The zero rate of VAT will apply to reusable period underwear and the installation of a wider range of energy saving materials from early 2024.

The Chancellor announced the extension of two VAT zero rates at the Autumn Statement 2023.

Period underwear

The zero rate for women’s sanitary products, which replaced the reduced rate in January 2021, has been extended to reusable period underwear, or “period pants”, with effect from 1 January 2024. It remains to be seen how period pants will be defined in legislation, and whether this will lead to uncertainty for taxpayers determining which products qualify.

From a sustainability perspective, it seems a logical choice to make reusable period products subject to the same zero rate of VAT as disposable period products. However, retailers must decide to pass the VAT saving onto customers for the change in VAT rate to have any impact on pricing. Research by Tax Policy Associates into the introduction of the zero rate for tampons suggested that retailers kept at least 80% of the benefit of the change to the VAT rate.

Retailers that wrote to the Treasury in August requesting the change pledged to pass any reduction in the VAT rate on to customers “so they feel the benefit of the cost saving immediately”. Some retailers cut the price of period pants by 20% earlier this year to reflect a zero rate of VAT. It will be worth keeping an eye on whether retailers reduce prices when the zero rate is introduced.

Extension of VAT relief for energy-saving materials

The zero rate for the installation of energy-saving materials will be extended to include additional technologies, such as water-source heat pumps. The zero rate will also be extended to installations in buildings used solely for a relevant charitable purpose. Both reforms will be implemented from February 2024. More details on the reforms will be published in a summary of responses to the consultation that concluded in May 2023.

Further reading

Autumn Statement

On 22 November 2023, Chancellor Jeremy Hunt delivered the Autumn Statement. Read ICAEW's analysis and reaction.

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