October 29th, 2012 / Insight posted in

Can I avoid VAT on my building work?

BS writes: I run a portfolio of investment properties, one of which comprises of a maisonette with a flat above it. I plan to combine these units and dig a basement to create a single four-storey dwelling. The building is not listed but we plan to retain the façade and demolish almost everything else. As it is a terraced house the party walls will remain in place. Will we qualify for a VAT saving?

As it’s a terraced house, you may not qualify for favourable VAT treatment, writes Adrian Houstoun, VAT partner at Kingston Smith LLP. Legislation states that to be a new build dwelling and, therefore, zero rated, no more than a single façade or, if a corner site, a double façade (the retention of which is a planning condition) of the pre-existing building must remain.

You could instead look at the 5% rate, which is available for a qualifying conversion, i.e. where there are a changed number of units as a result of the conversion, e.g. one house to two flats or two flats to one house.

Many of the costs of a qualifying conversion will attract VAT at a rate of 5% including:
1. Work to the fabric of the building
2. Work within the immediate site
3. Providing water, power, heat or access to the building
4. Providing drainage
5. Providing a means of waste disposal

You will need to ask suppliers to charge VAT at the 5% rate, and if they are in doubt about the type of work being undertaken, your planning consent should confirm the nature of the conversion.

Other services are standard rated and will incur VAT at 17.5%, including:
1. Installation of goods that are not building materials e.g. carpets and bedroom furniture
2. Hire of goods
3. Landscaping
4. Professional services, such as architects, surveyors, consultants and supervisors.

For more information, refer to Notice 708 section 7 of HMRC’s website.