Designing Buildings - User contributions [en]

Construction VAT

2021-04-28T16:22:20Z

Cantor Atkin:

= Introduction =

Value Added Tax (VAT) is a tax added to the cost of certain goods and services. It is only accountable where the party raising an invoice is VAT registered. It is necessary to register if VAT-able turnover exceeds a minimum threshold in any 12-month period.

When VAT is added to a sales invoice it is 'output tax' in the hands of the party raising the invoice. To the recipient of the invoice the same tax is 'input tax'.

Supplies of certain goods may be 'exempt' or 'zero-rated'. In both of these categories VAT is not added to the value of the supply but there is differing treatment with regard to input tax incurred with regard to making that supply.

In the design and construction sectors most supplies are 'standard-rated' and therefore VAT is added to the value of supplies at the prevailing rate of VAT. But certain types of work can sometimes be charged at a reduced rate, or at the zero rate (see the table below).

For a party wishing to undertake development of any sort it is vital that, in calculating the budget for the job, VAT is correctly accounted for:

* Are prices quoted inclusive or exclusive?
* Are you, the client, able to recover VAT or not?
* Is the work in question exempt from VAT or zero-rated?

If you run a VAT-registered construction business it is important to charge the right VAT rate. You can normally only charge the reduced or the zero rate if certain conditions are met. So if you think either rate applies, you should check the details to make sure.

The conditions can relate to different aspects of the work, including:

* The type of building worked on.
* The type of work you do and the equipment you instal.
* When you do the work.
* Who you do the work for.

Zero-rating and reduced-rating work on ordinary domestic dwellings

{|
| TYPE OF WORK
| VAT RATE
|-
| Construction of a new house or flat
| zero
|-
| Converting a building into a house or flat
| reduced rate
|-
| Renovating or altering an empty house or flat
| reduced rate
|-
| Supplying and installing certain mobility aids for elderly people
| reduced rate
|-
| Supplying and installing certain energy saving materials and equipment
| reduced rate
|-
| Supplying and installing certain heating systems and security goods when funded by a grant
| reduced rate
|-
| Connecting or reconnecting to the mains gas supply - first time connections and grant-funded connections or reconnections
| Can sometimes be zero or reduced rate
|-
| Supplying or installing goods for a disabled person in their home
| zero
|-
| Making alterations to suit a disabled person
| zero
|-
| Converting a residential building into a different residential use - for example combining two cottages into a single house
| reduced rate
|}

[Ref. HMRC: [http://www.hmrc.gov.uk/vat/sectors/builders/construction.htm#1 Work on ordinary homes that may be reduced-rated or zero-rated].]

Any construction work on an ordinary house or flat that isn't listed in the table above is always standard-rated at the current standard rate. This would include, for example:

* Building an extension, annex or granny annex.
* Converting a loft.
* Carrying out repairs or renovations.

= Reverse charge =

From March 2021, a domestic VAT reverse charge came into effect to tackle fraud in the construction industry. A reverse charge enables a customer to charge themselves VAT rather than the supplier charging it. This removes any opportunity for the supplier not to pay HMRC (missing trader fraud). The reverse charge applies to businesses that supply services to another business that will then sell on that service, but not those that supply services to consumers.

For more information see: [https://www.designingbuildings.co.uk/wiki/VAT_reverse_charge VAT reverse charge].

-----
= Related articles on Designing Buildings Wiki =

* Business rates.
* Capital gains tax.
* Construction invoice fraud.
* December 2020 GDP figures show construction vulnerable.
* Financial year.
* Hourly rate.
* PAYE.
* Stamp duty.
* Tax.
* Turnover.
* VAT - Option to tax (or to elect to waive exemption from VAT).
* VAT - Protected Buildings.
* VAT refunds on self-build homes.
* VAT reverse charge.

= External references =

* HMRC: [http://www.hmrc.gov.uk/vat/sectors/builders/construction.htm Building and construction work and VAT].
* HMRC: [http://www.hmrc.gov.uk/vat/sectors/builders/construction.htm#2 Work on buildings other than ordinary homes that may be reduced-rated or zero-rated].
* HMRC: [http://www.hmrc.gov.uk/vat/sectors/builders/construction.htm#1 Work on ordinary homes that may be reduced-rated or zero-rated].

--[[User:Cantor Atkin|Cantor Atkin]] 17:22, 28 Apr 2021 (BST)

[[Category:DCN_Policy]] [[Category:Taxation]] [[Category:Contracts_/_payment]] [[Category:Cost_/_business_planning]]

Insurance

2021-04-28T16:15:32Z

Cantor Atkin:

[[File:Buildinginsurance.jpg|link=File:Buildinginsurance.jpg]]

= Introduction =

This is a summary of issues to be considered by, and policies available for, individuals and firms engaging in building design and construction.

[NB: It is not intended to be all-encompassing as it is too large a topic to be covered in a single article.]

Insurance provides third-party protection against risks. Risks on construction projects can be significant, and so insurance is very common, providing protection both for the insured, and for the party to whom the insured has a liability.

It is for each individual or party to decide upon insurance policies that are appropriate for their circumstances. It is very expensive to over-insure and it could be very expensive to under-insure in the event that a claim is made. For this reason, expert guidance is advisable.

= Collateral warranty =

A collateral warranty is a legally binding agreement which is ancillary to a separate contractual agreement between two parties and which imposes an extended duty of care and a broader liability on those parties. Such a warranty effectively provides for a duty of care to be extended by a contracting party to a third party that is not party to the original contract.

An example would be where an architect of a new office development owes a duty of care to an occupier of the development in so far as any subsequent defects which may arise are concerned.

Privity of Contract rules would prevent any liability arising between architect and occupier without the existence of a collateral warranty enabling the developer to create a contractual obligation between architect and occupier.

See Collateral warranties for more information.

= Contractors all-risks insurance/contract works insurance =

This is a policy that covers all risks associated with a construction project, commonly issued under the joint names of a contractor and a principal client. It is sometimes referred to as 'Contract Works Insurance'.

Cover usually protects against the cost of unforeseen loss or damage to building works, machinery movement, advanced business interruption and public liability, installation and constructional plant during the construction period but can be extended to included the maintenance period too. In addition, cover can be included for tools, plant owned by the policy holder or plant hired in.

This type of policy can be extended to include a range of additional covers such as; public liability, business interruption and equipment erection.

See Contractors' all-risk insurance for more information.

= Directors and officers insurance =

This type of insurance protects Company Directors and Officers from a claim by shareholders or creditors of a company in the event that a claim is made in respect of their alleged wrongdoing. All Company Officers owe a fiduciary duty to their company and, in addition the concept of 'Wrongful Trading' is particularly hazardous if a company goes into administration or is liquidated.

Directorships are often held on a 'non-executive' basis and such positions can be particularly dangerous in the sense that a non-exec will not be involved in the day to day running of a business but will have exactly the same legal burdens as those directors who are running the business on a full-time basis.

See Directors and officers insurance for more information.

= Employers' liability insurance =

All firms who employ staff are legally required to hold Employers' Liability Insurance (EL). EL insurance will help pay compensation if an employee is injured or becomes ill because of the work they do for the employer.

Public liability insurance and employers liability insurance are usually offered in a single policy which may also cover office contents and buildings insurance requirements.

See Employers' liability insurance for more information.

= Flood insurance =

The twin effects of climate change and development on flood plains have become increasingly problematical for home owners and property insurers. Greater amounts of rainfall generally and more and more exceptional weather incidents have resulted in the insurance industry facing ever-rising flood-related insurance claims.

In the UK, summer 2012 was the wettest for a century and in June alone flood claims were running at circa £17 million per day.

See Flood insurance for more information.

= Integrated project insurance =

Integrated Project Insurance (IPI) collectively insures the client and all the other 'Alliance' partners: consultants, specialists, manufacturers, construction managers and their supply chains.

In particular, it replaces liability-driven professional indemnity insurance (which requires proof of fault before responding) with financial loss cover where the outturn cost above the target cost plus pain-share is insured.

See Integrated project insurance for more information.

= Latent defects insurance =

Latent defects insurance provides cover for new buildings (or new works to existing buildings) in the event that latent defects become apparent.

Latent defects insurance is seen to provide more complete cover for defects than other methods, (such as collateral warranties) which may require proof of breach of contract. This can take considerable time, and can be subject to complications such as net contribution clauses and insolvencies.

See Latent defects insurance for more information.

= Legal expenses insurance =

This is a relatively inexpensive form of insurance which can either be insured via a specific policy or as a section of a combined policy. In an increasingly litigious world it is becoming common to insure against the cost of defending legal action.

Such are the levels of legal costs, often with no certainty of recovery, that this type of insurance is seen as an inexpensive safety net.

= Legal indemnity insurance =

This type of insurance exists to provide recompense in the event that the policy holder incurs capital loss or expense in dealing with a range of possible legal issues which are inadvertently encountered.

Examples could be to deal with unforeseen rights of way issues over land that has been purchased, or costs incurred in complying with certain planning requirements.

See Legal indemnities for more information.

= Office combined/contents/buildings insurance =

Business owners will usually want to ensure that their assets are insured against damage or theft. In addition, these policies may have sections offering cover against Business Interruption or Consequential Loss as well as fraud.

Business Interruption Insurance is particularly important as it covers the loss of profit which may be caused by an interruption to commercial activity occasioned by flood or fire. Loss of rent receivable from a tenant can also be insured in this way.

So, in addition to the usual insurance of assets, these policies also insure, in certain circumstances, the loss of income and this is particularly important in a commercial context. Salaries and other overheads remain, regardless of events, and so it is sensible to ensure that they can continue to be paid.

= Performance bond =

A performance bond is commonly used in the construction industry as a means of insuring a client against the risk of a contractor failing to fulfil contractual obligations. The most common concern is that the contractor will become insolvent before completing the contract.

Where this occurs, the bond provides guaranteed compensation up to the amount of the performance bond. Bonds can be issued either by an insurance company or bank. The cost of such a bond is usually borne by the contractor.

Whether or not such a bond is required will depend, in the main, on the perceived financial strength of the party bidding to win a contract.

See Performance bond for more information.

= Professional indemnity insurance =

For all providers of professional services, professional indemnity insurance (PI insurance) is considered an 'essential'. Indeed many clients will not enter into a contractual relationship with a supplier unless they can demonstrate that they hold professional indemnity insurance to a minimum level.

Professional indemnity insurance is there to cover proven negligence on the part of the service provider. The consequences of such negligence on substantial construction projects can be enormously expensive to correct and this type of insurance should, if arranged at the commensurate level, provide:

* Certainty that the service provider will not be bankrupted by a successful claim.
* Recompense to the client for the cost of remediating the consequences of the negligence in question.

Most professional indemnity policies will offer additional sections of cover (such as financial fraud) but their principal purpose is to cover the risk of negligence in providing professional services.

These policies are relatively expensive although the nature of services being offered will be the main factor in determining the level of premium. For example, surveyors offering commercial property valuation services or architects offering design services to commercial developers will pay premiums that are high when compared to providers of, for example, rating services.

A further point to consider here is the level of excess that the policy holder is prepared to bear themselves. This is particularly important as most sums paid out by insurers under professional indemnity claims are to meet legal expenses incurred without a case actually coming to Court.

So, in practice this form of insurance pays legal costs, not damages, and for this reason a willingness by a policyholder to meet, say, the first £10,000 of a potential claim should result in a lower overall premium as the insurer will have more confidence that they will not be called upon to pay out themselves.

See Professional indemnity insurance for more information.

= Public liability insurance =

Public liability insurance is generally required of contractors to provide cover against personal injury or death, or loss or damage to property of third parties such as members of the public or independent sub-contractors.

Public liability insurance and employers liability insurance are usually offered in a single policy which may also cover office contents and buildings insurance requirements.

See Public liability insurance for more information

= Residual value insurance =

Residual value insurance is designed to underwrite valuations of assets at the date of termination of a lease or other type of financing arrangement.

Beneficiaries of such policies are predominantly providers of asset finance or manufacturers, but business owners and shareholders can also be beneficiaries as shareholder value can be protected or enhanced if balance sheet asset values are protected in this way.

See Residual value insurance for more information.

= Terrorism insurance =

This type of insurance can be obtained on a 'stand-alone' basis or as an addition to a conventional buildings or commercial combined policy. Simply stated, it covers material damage caused by an act of terrorism.

It is therefore particularly relevant for projects or buildings located in areas which may be considered to be high-risk terrorist targets such as the City of London.

= Related articles on Designing Buildings Wiki =

* 3D animation for insurance risk analysis.
* Building Users' Insurance Against Latent Defects.
* Business interruption cover under COVID-19.
* Collateral warranties.
* Contractors' all-risk insurance.
* Contract works insurance.
* Counter Terrorism Security Advisor.
* Decennial liability.
* Design liability.
* Directors and officers insurance.
* Employer's liability insurance.
* Excepted risk.
* Flood insurance.
* Future of construction insurance.
* Indemnity to principals.
* Integrated project insurance.
* JCT Clause 6.5.1 Insurance.
* Joint names policy.
* Latent defects insurance.
* Legal indemnities.
* Legal indemnity insurance.
* Non-negligent liability insurance.
* Performance bond.
* Professional consultant's certificate.
* Professional Indemnity Insurance.
* Public liability insurance.
* Residual value insurance.
* Reverse premium.
* Self build insurance.
* Specified perils.
* Subcontractor default insurance (SDI).
* Warranty.

= External references =

* [http://www.3diltd.co.uk/ http://www.3diltd.co.uk/.]
* [http://www.building.co.uk/a-quick-guide-to-construction-insurance/5043885.article http://www.building.co.uk/a-quick-guide-to-construction-insurance/5043885.article.]
* [https://www.projectcubicle.com/construction-insurance-a-builders-guide/ Construction Insurance: A Builders Guide]

--[[User:Cantor Atkin|Cantor Atkin]] 17:15, 28 Apr 2021 (BST)

[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:DCN_Regulation]] [[Category:Appointments]] [[Category:Client_procedures]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]] [[Category:Design]] [[Category:Procurement]]

User:Cantor Atkin

2021-04-28T16:14:14Z

Cantor Atkin:

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