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The Value Added Tax (VAT) on construction services and materials in the United Kingdom can be charged at different rates depending on the construction work type. The standard rate is 20%, but a reduced rate of 5% or even a zero rate may be applicable in certain circumstances.
According to HMRC, the 5% reduced VAT rate applies to particular construction works, including:
- Renovating or altering residential properties that have been empty for more than two years.
- Converting a non-residential property into a residential property.
- Converting a single household dwelling into multiple household dwellings or vice versa.
- Installing energy-saving materials and equipment (e.g., insulation, solar panels) in residential properties.
- Installing certain mobility aids for elderly or disabled individuals in their homes.
HMRC guidance on lower VAT rates for construction can be found in VAT Notice 708: Buildings and construction, available on the UK Government website. It provides detailed information on the different VAT rates, their applicable conditions, and how to apply them.
A certificate is typically required to confirm that the construction work is eligible for the reduced or zero VAT rates. The contractor or subcontractor must obtain this certificate from their customer before applying the reduced VAT rate. The certificate should include details such as the customer’s name, address, and a description of the eligible work, as well as a declaration that the work qualifies for the lower VAT rate.
In some cases, belated certificates may be issued if the customer and contractor/subcontractor were unaware of the eligibility for a reduced VAT rate when the work was carried out. The contractor can apply the reduced rate retrospectively and issue a credit note to the customer for the overcharged VAT amount. However, this should be done as soon as possible after discovering the error and within the time limits for VAT adjustments set by HMRC.
It is essential to consult the most up-to-date guidance on the UK Government website, as VAT rates and regulations can change over time. If you are still determining your specific situation, seeking professional advice from a qualified accountant or tax adviser is advisable. You can call us to discuss your business and VAT compliance with our specialist VAT tax advisors.