VAT or no VAT ?
Steve Lumby
There are several important exceptions where a VAT-registered building contractor or subcontractor does not have to charge VAT. Generally speaking, building conservation work is liable to VAT at 17.5 per cent, but a reduced rate or zero rate can be applied if certain conditions are met.
CONVERSIONSCertain types of residential conversion work are eligible for the reduced rate of VAT (five per cent), regardless of whether the building is historic or not. These include conversions from one type of residential use to another, such as from a house to flats and vice versa, and conversions from non-residential use, such as from a shop to a house.
Under certain conditions, conversion work can be eligible for the zero rate of VAT. This can be the case where the client is a registered social landlord or housing association, and the conversion is from a non-residential use. Zero rating can also apply to a non-residential conversion for a registered social landlord when a residential building that has been unoccupied for at least ten years is brought back into habitation.
Where the building concerned is to become a communal residential building, reduced-rating or zero-rating is conditional upon the client providing a certificate to the contractor, proving the client will be using the building solely as a communal residential building. (The certificates can be found in section 18 of HMRC's Public Notice 708 - see 'Recommended Reading', below.) Sub-contractors working to a contractor or another sub-contractor cannot reduce-rate or zero-rate their supplies.
VACANT RESIDENTIAL PREMISESUnder certain conditions, renovation or alteration work carried out to a residential building is eligible for the reduced rate (five per cent), regardless of whether or not the building is historic. One of those conditions is that the building must have been empty for at least three years before the works begin.
Where the building is a communal residential building, reduced-rating is conditional upon the client providing a certificate to the contractor attesting that the building will be used as a communal residential building. Sub-contractors, working to a contractor or another sub-contractor, cannot reduce-rate their supplies.
ALTERATION OF LISTED BUILDINGSAlteration works carried out to historic buildings can also be eligible for the zero rate if all the following conditions are met:
- The building must be listed (that is to say, included in a statutory list of buildings of special architectural or historic interest: unlisted buildings in conservation areas or buildings included in a local authority's non-statutory list of buildings of local interest are not listed buildings)
- The building must be a residential building or a 'charitable' building, for instance used by a charity solely for non-business purposes and/or as a village hall
- The building must be altered by the works and a meaningful change has been made to the fabric of the building
- The works must not be for repair or maintenance purposes
- Listed building consent must have been both required and granted for the works.
On the final point, it should be noted that many listed places of worship are not subject to the usual controls over listed buildings. These exceptions are subject instead to controls administered by their respective churches under 'ecclesiastical exemptions'.
Where the building concerned is a communal residential or 'charitable' building, zero-rating is conditional upon the client providing a certificate to the contractor attesting that the client will be using the building solely as a communal residential or 'charitable' building. Sub-contractors, working to a contractor or another sub-contractor cannot zero-rate their supplies.
EXAMPLES OF ALTERATIONS AND REPAIR/MAINTENANCERepair or maintenance works are liable to VAT at the standard rate but if they form part of a conversion or renovation as described below, they can be reduced- or zero-rated accordingly.
| ALTERATION | REPAIR/MAINTENANCE |
Extensions Opening/closing doorways or window apertures Replacement of a flat roof with a pitched roof Damp proofing Extending wiring and plumbing systems Floodlighting (when installed on a building) Replacement of uPVC windows with wooden windows for aesthetic reasons |
Replacement of rotten windows with uPVC double glazing Re-felt and batten roof Replacement of a straw thatch with reeds and changes to ridge detail Redecorating Repointing Rewiring |
LISTED PLACES OF WORSHIP GRANT SCHEME
VAT incurred on works of repair or maintenance by congregations or other parties responsible for the upkeep of listed places of worship can reclaim that VAT through a grant refund scheme operated by the Department of Culture, Media and Sport.
GENERAL REQUIREMENTSIf the works fall into more than one category and more than one rate of VAT applies to different aspects of the job, the lowest rate takes precedent. For example, if alterations are being made to a listed residential building as part of the conversion into another type of residential building, VAT will be applied at zero per cent rather than at five per cent.
FURTHER INFORMATIONA further useful resource outlining how VAT applies to building conservation work is HMRC's Public Notice 708: VAT - Buildings and construction. Copies can be accessed by calling 0845 010 9000 or visiting www.hmrc.gov.uk. The helpline can also provide further advice if necessary.
Information on the Listed Places of Worship Grant Scheme can be obtained by calling 0845 601 5945 or visiting www.lpwscheme.org.uk.
