Tag: 5% VAT

When do you need a certificate for 5% VAT on building work?

Interior construction site

Building work can be charged at 5% in the following circumstances:

  1. Renovating residential property that has been empty for more than 2 years
  2. Where the number of dwellings is being increased such as converting a house into flats
  3. Converting a commercial building into residential
  4. Converting a house into an HMO

VAT Notice 708 has the exact details and whether or not the 5% rate can be used is a matter of fact not opinion. HMRC will not give specific clearance, they will refer you to the rules and ask you to check the rules with your builder for your project.

The property owner doesn’t issue a certificate (as would be needed to Zero Rating), its for the builder/developer to determine whether and on what the 5% VAT rate can be applied.

The only exceptions (when a reduced rate certificate would be needed) are

(a) a home or other institution providing residential accommodation for children

(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder

a hospice

residential accommodation for students or school pupils

residential accommodation for members of any of the armed forces

a monastery, nunnery or similar establishment or

an institution which is the sole or main residence of at least 90 per cent of its residents

and will not be used as a hospital, prison or similar institution or an hotel, inn or similar establishment.

steve@bicknells.net

The VAT advantages of a development company

Group of construction workers. House renovation.

Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.

If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.

Assuming you employ a builder…

The VAT Rules are in VAT Notice 708 Buildings & Construction

Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’
  • a different number of ‘single household dwellings’
  • a ‘multiple occupancy dwelling’, such as bed-sits, or
  • premises intended for use solely for a ‘relevant residential purpose’

As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.

If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.

If your Development Company is VAT registered you can reclaim all the VAT.

Get your existing business or your property development company to convert the property and then sell it to another company that you own (may be an SPV)  will be a  VAT 5% Rated transaction. The other company then carries on the rental business.

steve@bicknells.net