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Under buildings and construction (VAT Notice 708), you can find out how Construction VAT applies whether you are a contractor, subcontractor or developer. This information is necessary to correctly identify the relevant VAT rate of 20%, 5% or 0% for your construction projects. This article provides guidance and examples related to VAT issues on construction projects.
Construction VAT on houses and flats by builders and trades such as plumbers, plasterers and carpenters is charged at a standard rate of 20%. However, there are several exceptions to this rule:
When constructing a new building, VAT is generally charged at the standard rate. However, a 0% rate may apply when constructing a qualifying building. A qualifying building includes those:
Designed as a dwelling
Solely for a relevant residential purpose
Solely for a relevant charitable purpose
Certain conditions must be met, including the course of construction, having valid certification and other requirements.
You may be able to apply zero rate VAT (instead of the standard rate of 20%) on conversion services of non-residential buildings into relevant housing if:
The building is being converted into a new eligible dwelling
The building will be used solely for relevant residential purposes
The conversion services are zero rated when provided to relevant housing associations, specifically for non-residential conversions and more.
You may not need to charge VAT on alterations made to a disabled person’s home or certain equipment supplied for their personal use where VAT at 0% applies. The following qualifies as “disabled” and is eligible for zero-rated VAT:
Physical or mental impairment that significantly affects their ability to perform everyday activities long-term.
Condition that the medical profession recognizes as a chronic sickness (e.g., diabetes).
Terminal illness.
Individuals who are temporarily disabled or incapacitated or elderly and frail but not disabled, do not qualify for zero-rated VAT. However, reduced-rate VAT of 5% may be applicable instead.
The VAT rate for renovating or altering unoccupied residential properties can be reduced to 5% instead of the standard 20% if:
The dwelling hasn’t been lived in for 2 years before work starts.
The premises are for a relevant residential purpose.
Note: The premises must qualify as residential, and the service must also meet qualifying criteria.
In addition to the above, there are other exceptions for Construction VAT as follows:
Zero percent VAT for initial gas and electricity connections.
The reduced rate of 5% applies to the conversion (excluding housing associations) of non-residential buildings into qualifying dwellings or communal residential buildings, as well as the conversion of residential buildings to a different residential use.
The VAT rate for the installation of energy-saving materials, grant-funded heating system measures, and qualifying security goods is 5%.
The 5% VAT reduction applies to installing mobility aids for the elderly in homes.
Concluding Remark:
We recognize that understanding Construction VAT matters on building projects can be complex, requiring relevant resources and expert knowledge.
The above notes may assist with your construction project VAT issues. For a more comprehensive understanding and to discuss tailored solutions for your specific circumstances, please contact us at Stan Lee Accountancy.
We are Chartered Certified Accountants based in London, United Kingdom, specialising in construction accountancy matters.
Looking for our accounting services?
We are required by our professional bodies to have separate entity and therefore, there are two firms involved. Both firms are required to have Professional Indemnity Insurance (details of the PII available in our office upon request).
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