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Property and VAT – different rates for different builds

24th November 2016

The rate of VAT a builder will incur is dependent on the type of construction project that they are engaged in.

In the construction sector most supplies are ‘standard rated’. This means that VAT is added to the value of supplies at the prevalent rate of VAT.

There are some buildings and builds which are VAT exempt or reduced VAT is applied but they have to meet strict criteria as set out by HMRC.

Flats and houses

The majority of work done on houses and flats by builders and allied tradespeople such as plumbers, plasterers, carpenters and electricians will be charged at the standard rate of 20%. 

There are certain exceptions to this rate for some types of work but the work will have to meet certain conditions.

Zero and reduced rate work

A builder may not have to add VAT if they are constructing a new house or flat or doing work for a registered disabled person in their own home. 

Buildings other than residential buildings may also be eligible for the zero VAT rate. 

These buildings include:

  • civil engineering work developing a residential caravan park
  • protected buildings when the work is approved renovations or alterations
  • converting a non-residential building into a residential building for a housing association
  • certain buildings constructed for charities used for ‘relevant charitable purpose’
  • communal residential buildings such as children’s homes, hospices, student accommodation, armed forces accommodation and monasteries, convents and similar buildings. 

The reduced VAT rate of 5% may be applicable for work including:

  • installing energy saving measures and some work for people aged over 60
  • converting a building from one residential use to another
  • converting a house to flats
  • home improvements carried out on property located on the Isle of Man
  • renovating a house or flat which is unoccupied. 

What qualifies as a new home?

To gain a zero VAT rating work must qualify as a genuinely new, self-contained house or flat. 

It must have no doors or connections to other properties and can it could be sold as a completely spate, individual property. 

It must also have the correct planning permission, be capable of being used independently of any other building and any other buildings on the site should have been demolished to ground level. 

Construction work that is zero rated must occur during the course of the building project or be related to it such as demolition. 

What qualifies as disabled?

Zero rated work carried out on a disabled persons’ dwelling includes:

  • widening doorways or passageways
  • building a ramp
  • adapting, installing or extending a bathroom, washroom or lavatory to meet their specific needs
  • preparation and restoration of the décor
  • repairing, maintaining or installing a lift to help them move between floors. 

The Brebners team can advise you on what rates of VAT are applicable to building and construction projects. Contact us on 0207 734 2244.