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In order to achieve Part L Compliance (energy efficiency) you shouldn't cut around thermal insulation. If you do this your home or building won't be energy efficient as valuable heat will escape through the hole of the downlight.

A downlight can act like a chimney and draw out warm, rising air from a room, up into the cold space above. The effect is increased in upper floors containing lofts.

Selecting the appropriate color or finish for your lights and switches is key to creating a unified and attractive interior. Aim to match the finish of your downlights with other elements like switches and sockets. The matt white finish is especially popular for downlights as it seamlessly merges with white ceilings. More info here.