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 of 5 per cent, or at the zero rate (see the table below).
- 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.
|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|
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.
This article was created by --Martincantor 11:28, 6 August 2012 (BST)
 Related articles on Designing Buildings Wiki
- Business rates.
- Capital gains tax.
- Construction invoice fraud.
- Stamp duty.
- VAT - Option to tax (or to elect to waive exemption from VAT).
- VAT - Protected Buildings.
- VAT refunds on self-build homes.
 External references
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