VENSAV3170 - accounting for VAT when the 60% threshold has been exceeded

Where the supply was not made:

• to a qualifying person, to a relevant housing association or for a relevant residential purpose; and
• the 60% test threshold had been exceeded,

it was necessary to apportion the value of the total supply between materials (which would be standard rated) and labour (which would be reduced rated).

It would have been a commercial decision as to how this apportionment was to be carried out – normal commercial practice would have been for the installer to at least recharge the cost of the materials on to its customer and, more commonly, to apply a mark-up over and above the price paid by it for those materials. Provided there was no artificial undervaluation of the materials by the installer, HMRC would not have challenged such apportionments as long as the installer at least recharged the costs incurred by it.

Once the installer had determined the apportionment that it wished to apply, it needed to separately identify the materials and labour element on the VAT invoice it issued to its customer. The materials element would bear VAT at the standard rate and the labour element would bear VAT at the reduced rate. This VAT had to be included on the installer’s VAT return and paid to HMRC in the normal way.