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 basic conditions for reduced-rating the conversion of premises to a different residential use
7.1.1 Introduction
If you carry out work to an existing building you will normally have to charge VAT at the standard rate. You may, however, be able to charge VAT at the reduced rate of 5 per cent if you are converting premises into:
- a ‘single household dwelling’ – see paragraph 14.4
- a different number of ‘single household dwellings’ – see paragraph 14.4
- a ‘multiple occupancy dwelling’, such as bed-sits – see paragraph 14.5, or
- premises intended for use solely for a ‘relevant residential purpose’ – see paragraph 14.6
Example 1
A block of flats consists of 4 floors, each with 4 flats. A lift is installed and work is carried out throughout the whole building. On the ground, first and second floors the footprint of each flat is changed to take account of the new lift. This results in the internal configuration of each flat being changed. On the third floor 3 penthouse flats are created from the original 4.
Although the overall number of single household dwellings in the building has changed (there has been a reduction by one unit) only the work to convert the third floor will be eligible for the reduced rate because it is only in this part of the building that the number of dwellings has changed. But see also the next example.
Example 2
Taking the above example, if the reduction in the number of flats on the third floor happens by combining 2 of the original flats together – the other 2 being refurbished – then the reduced rate will only apply to the work to merge the 2 flats together.
Example 3
Taking example 1, as well as the changes to the top floor, the number of flats on the ground floor is changed to 5 smaller units. In this example, the overall number of dwellings in the building has not changed (there are 16 units both before and after the work). However, as parts of the building are examined independently, and because the respective parts of the building meet the conditions at paragraph 7.3, the reduced rate can apply to the work to convert those parts.
What services can I reduced-rate?
Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.
You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:
- means of providing water, power, heat or access
- means of providing drainage or security, or
- provision of means of waste disposal
All other services are standard-rated. For example, you must standard-rate:
- the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
- the erection and dismantling of scaffolding
- the hire of goods
- landscaping
- the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors
7.6.1 Garages
You can reduced-rate the:
- conversion of an outbuilding into a garage
- construction of a new detached garage, and
- the construction of a drive serving the garage
provided:
- the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion, and
- the work is carried out at the same time as the qualifying conversion
Please note however that you cannot reduced-rate the provision of a hardstanding unless it is also used as an access.
7.6.2 Building control and planning consent
If you carry out work that requires statutory planning consent or statutory building control and it has not been granted, then your work is standard-rated.
