VAT on Construction
Sales may attract a sales tax, in the UK we call this tax VAT.
Works, in the variety of locations and for a variety of customers may attract a number of different sales tax rates, from exempt, through zero rated and partial or lower rated to a standard rating. The HMRC expects every business to know which rate is applicable if necessary to prove the rate charged to their customers is correct.
It is important that if there is any doubt then HMRC’s guidance must be sought and reliance on any direction must only be made on written evidence.
VAT, at zero rate, is charged on the construction of new buildings, provided the supply is for a social purpose e.g. new houses, dwellings and buildings with a charitable status.
VAT, at zero rate, is charged on ‘approved’ alteration work on “protected buildings”. Approval in this context refers to its VAT status not on some Planning or Building Regulations application. Alteration, in this context, means that a building’s fabric (walls, internal surfaces, floors, stairs, windows, doors, plumbing and wiring is changed in a meaningful way.
VAT, at the standard rate, is charged on repair or maintenance work of any “protected building”. VAT, at the Reduced Rate, is charged on work which is altering an empty residential building where a change of use is envisaged. VAT, at the standard rate, is charged on all other construction work.
VAT is a very complex area of law and specialist advice may be required where works are being considered which do not clearly fall into a specific category.
The following is given by way of example: The shell of a building (structure and cladding) used in new construction is considered, for VAT purposes, as ‘alteration works’ if at least two walls are retained. ‘Granny annexes’ when sold as part of a dwelling are not to be treated as a separate commodity. A new build annexe to a charitable building would be treated as zero-rated if it has an independent means of access and it could function independently of the original building. Knowledge of these stipulations may may be valuable when tendering a design and build project.
The HMRC’s website has guidance under ‘Buildings and Construction’ or try the www.nibusinessinfo.co.uk which also has useful information.