Construction VAT

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).

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: 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.

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This article was created by --Martincantor 11:28, 6 August 2012 (BST)

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki

• Business rates.
• Capital gains tax.
• Construction invoice fraud.
• PAYE.
• Stamp duty.
• VAT - Option to tax (or to elect to waive exemption from VAT).
• VAT - Protected Buildings.
• VAT refunds on self-build homes.

[edit] External references

• HMRC: Building and construction work and VAT.
• HMRC: Work on buildings other than ordinary homes that may be reduced-rated or zero-rated.
• HMRC: Work on ordinary homes that may be reduced-rated or zero-rated.

Comments

Re: Construction of a new house or flat

I think it would be more accurate to say that "construction of most new houses and flats" is zero rated, as new separate self-contained dwellings can be liable to VAT if the terms of the planning permission prevent the separate disposal or separate use of the new dwelling. This is detailed in question 13 on tax form VAT431NB and its notes.

see https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-for-new-houses-vat431nb