Building and construction work and VAT

Many kinds of work that builders and similar trades do are standard-rated for VAT. But certain types of work can sometimes be charged at a reduced rate of 5 per cent, or at the zero rate.

If you run a VAT-registered construction business it's important to charge the right VAT rate. You can normally only charge the reduced or the zero rate if certain conditions are met. So if you think either rate applies you should check the details to make sure.

The conditions can relate to different aspects of the work, including:

  • the type of building worked on
  • the type of work you do and the equipment you install
  • when you do the work
  • who you do the work for

Other aspects of the work can affect the VAT rate too. This guide explains when certain types of construction work can be reduced-rated or zero-rated.

On this page:

Work on ordinary homes that may be reduced-rated or zero-rated

Much of the work that builders and similar trades-people do is standard-rated. But some types of work can be reduced-rated or zero-rated if certain conditions are met.

The table below lists some of the situations when construction and related work can qualify to be reduced-rated or zero-rated for VAT. In each case, specific conditions apply. The types of work, types of building and in some cases the types of customer are strictly defined. For example, the meaning of the term 'new house' may not be immediately obvious - there are some houses it wouldn't apply to. And even if the house qualifies as new, not all work done to it can be zero-rated.

You should read the further guidance notes in each case before deciding to charge the reduced rate or the zero rate.

Zero-rating and reduced-rating work on ordinary domestic dwellings
Type of work VAT rate Further guidance notes
Construction of a new house or flat zero See our guide on VAT and building new houses and flats
Converting a building into a house or flat reduced rate See VAT Notice 708, 'Buildings and construction'
Renovating or altering an empty house or flat reduced rate See VAT Notice 708, 'Buildings and construction'
Supplying and installing certain mobility aids for elderly people reduced rate See the section below on installing mobility aids for elderly people
Supplying and installing certain energy saving materials and equipment reduced rate See the section below on installing energy saving materials
Supplying and installing certain heating systems and security goods when funded by a grant reduced rate See the section below on installing grant-funded heating equipment and security goods
Connecting or reconnecting to the mains gas supply - first time connections and grant-funded connections or reconnections Can sometimes be zero or reduced rate See the section below on connecting or reconnecting someone to the mains gas supply
Supplying or installing goods for a disabled person in their home zero See our guide on construction and installation work for disabled people
Making alterations to suit a disabled person zero See our guide on construction and installation work for disabled people
Converting a residential building into a different residential use - for example combining two cottages into a single house reduced rate See VAT Notice 708, 'Buildings and construction'

Any construction work on an ordinary house or flat that isn't listed in the table above is always standard-rated at the current standard rate. This would include, for example:

  • building an extension, annex or granny annex
  • converting a loft
  • doing repairs or renovations

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Work on buildings other than ordinary homes that may be reduced-rated or zero-rated

In some situations, construction work on buildings and sites that aren't ordinary houses or flats can be charged at the reduced rate or at the zero rate. The table below lists some of these situations. In each case, specific conditions apply. The types of work, types of building and in some cases types of customer are also strictly defined.

You should read the further guidance notes in each case before deciding to charge the reduced rate or the zero rate.

Zero-rating and reduced-rating construction work on buildings that aren't ordinary homes

Type of work VAT rate Further guidance notes
Civil engineering work for developing a residential caravan park zero See VAT Notice 708, 'Buildings and construction'
Approved alterations and substantial reconstructions to protected buildings zero See VAT Notice 708, 'Buildings and construction'
Converting a non-residential building into a house or communal residential building for a housing association zero See VAT Notice 708, 'Buildings and construction'
Home improvements to a private domestic property on the Isle of Man (until 31 December 2010) reduced rate Download the Isle of Man Government guide to VAT on home improvements

The construction of certain other types of communal residential building may in some cases qualify for zero-rating. These can include:

  • children's homes
  • residential care homes
  • hospices
  • student accommodation
  • school boarding houses
  • armed forces' accommodation
  • monasteries, nunneries and similar buildings

You can read more about the types of communal residential building whose construction may qualify for zero-rating - and those that can't qualify - in VAT Notice 708, 'Buildings and construction'.

The construction of certain buildings used by charities can also qualify for zero-rating if they're used only for a 'relevant charitable purpose' - see the link below.

More about zero-rating the construction of certain communal residential buildings in VAT Notice 708

Find out what counts as a relevant charitable purpose in VAT Notice 708

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Installing energy-saving materials

You may be able to charge VAT at the reduced rate of 5 per cent when you supply and install certain energy-saving materials.

Whether you can charge reduced rate VAT depends on the following:

Are you installing the energy-saving materials or just supplying them?

You can charge the reduced rate of VAT on work you do to install qualifying energy-saving materials, and on the price of the materials themselves. But if you only supply the materials then you must always charge the standard rate of VAT on them.

Are you installing one of the following types of energy-saving materials?

The reduced- rate only applies to certain energy-saving materials. These are:

  • central heating and hot water system controls
  • draught stripping
  • insulation
  • solar panels
  • wind turbines
  • water turbines
  • ground-source heat pumps
  • air-source heat pumps
  • micro combined heat and power units
  • wood-fuelled boilers

The following are not covered by the scheme:

  • energy efficient boilers
  • secondary or double glazing
  • low emission glass
  • energy efficient fridge freezers
  • materials and equipment that you buy without having them installed

However, if you are installing grant-funded energy saving equipment, you may still be able charge the lower rate of VAT. See the section in this guide on grants for energy saving equipment.

Check which energy saving materials you can zero-rate in VAT Notice 708/6

Are you installing the energy-saving material in a qualifying building?

You can only charge the reduced rate of VAT on qualifying energy- saving materials when you install them in one of the following:

  • residential accommodation
  • a building used by a charity for a non-business purpose
  • a building used by a charity – such as a village hall, community centre or similar - to provide social or recreational facilities for a local community

Check which energy saving materials you can zero-rate in VAT Notice 708/6

Are you installing energy-saving materials with other building works?

If you have to do any minor work as part of the installation then you can charge the reduced rate on that too. This could include, for example, cutting down doors and windows or painting and plastering the area you've worked on to make good. But if installing the energy-saving materials is incidental to another job - such as building an extension, replacing a roof, or installing a central -heating system - then you can't charge the reduced rate on any of the work. If the standard rate of VAT applies to the main job then you'll have to charge it on the whole of the work.

If you install energy-saving materials during the course of construction of a new dwelling, your supply is zero-rated.

Find out more about energy -saving materials supplied with other building works in VAT Notice 708/6 Buildings and construction.

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Installing grant-funded heating equipment

You may be able to charge VAT at the reduced rate of 5 per cent on certain items of heating and security equipment if you install them in the homes of people who are either:

  • aged 60 or over
  • on benefits

These items are:

  • heating appliances like boilers
  • heating systems - for example central heating
  • renewable-source heating systems, such as solar heating

You may also be able to charge the reduced rate on a connection or reconnection to the mains gas supply. See the section below on connecting someone to the mains gas supply for more information.

As long as at least part of the bill is paid for by a qualifying grant, you may be able to charge the reduced rate on the amount of the bill that's grant-funded. But you can only charge the reduced rate if all of the following apply:

  • the person you do the work for is receiving a benefit that qualifies, or they're aged 60 or over
  • you install the goods in their only or main home
  • the goods you install are ones that the reduced rate applies to
  • you install the goods and not just supply them - as long as you install the goods you can charge the reduced rate on their price as well as on the installation work
  • the installation is covered by a grant made under a scheme to fund energy efficiency measures in the homes of people who are less well off

Heating appliances that can qualify for the reduced rate

The reduced rate can apply when you install:

  • closed solid-fuel fire cassettes
  • electric dual immersion water heaters with factory-insulated hot water tanks
  • electric storage heaters
  • gas-fired boilers
  • gas room heaters with thermostatic controls
  • oil-fired boilers
  • radiators

Central heating systems

The reduced rate can apply when you install, maintain or repair:

  • boilers
  • radiators
  • pipe work
  • controls that are part of a central heating system

It applies to heating systems that also produce electricity. You can charge the reduced rate on grant-funded repairs and replacements for these items even if the original system wasn't grant-funded.

Renewable-source heating systems

The reduced rate can apply when you install, maintain or repair renewable-source heating systems. These are space or water heating systems that use energy from:

  • renewable sources, including solar, wind and hydroelectric power
  • near-renewable sources, including ground and air heat

Benefits that qualify someone to receive the reduced rate

Someone who receives one or more of the following benefits could be eligible to be charged the reduced rate of VAT on a grant-funded installation of heating equipment, security goods or a gas connection:

  • Child Tax Credit (other than the family element)
  • Council Tax Benefit
  • Disability Living Allowance
  • Disablement Pension
  • Housing Benefit
  • Income-based Jobseeker's Allowance
  • Income Support
  • War Disablement Pension
  • Working Tax Credit

Grant funding

You can only charge the reduced rate on the proportion of the bill that's covered by the grant. So if your customer only gets a grant for half of the cost, you can only charge the reduced rate on half of your bill. And if the grant covers other work as well then you can only charge the reduced rate on the work described in this section. Any other work must normally be standard-rated.

If there's a leasing arrangement in place and you sell the heating system to the leasing company, you must charge the standard rate of VAT on the sale. But you can charge the reduced rate on the installation work if you bill that directly to the householder and meet all the other conditions.

Read more about VAT on grant-funded installations of heating in VAT Notice 708/6

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Installing mobility aids for elderly people

The reduced rate of VAT can apply if you install mobility aids for elderly people. This can be the case if you install them for someone aged 60 or over, either in their own private home or in a private home that they share with their friends or relatives. The reduced rate is currently 5 per cent.

You can only charge the reduced rate when you install mobility aids if all of the following apply:

  • You install the goods and not just supply them. As long as you install the goods you can charge the reduced rate on their price as well as on the installation work. But if you only supply them, or if you just repair or replace an existing installation, you must charge the standard rate of VAT.
  • You install the goods in a private home, not in a residential care home or similar establishment.
  • The person who uses and benefits from the goods you install is aged 60 or over. It doesn't matter though who actually orders and pays for the work.
  • The goods you install qualify for the reduced rate. Mobility aids that can be reduced-rated for VAT are listed below.

You can only charge the reduced rate on qualifying installations of the following items:

  • grab rails
  • ramps
  • stair lifts
  • bath lifts
  • built-in shower seats or showers containing built-in shower seats
  • walk-in baths with sealable doors

The reduced rate doesn't apply to general alterations that you might make to help elderly people, such as widening doors or building an annex.

Read the HMRC consumer guide to VAT on mobility aids for the elderly

More about VAT on installations of mobility aids for elderly people in VAT Notice 708

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Connecting or reconnecting someone to the mains gas supply

Connecting or reconnecting a building to the mains gas supply is normally standard-rated for VAT purposes. The concession, allowing the connecting of a private dwelling to the mains gas supply (or to the mains electricity supply) to be zero-rated has been withdrawn from the 1 January 2012.

Charging the reduced rate

If you connect or reconnect someone's mains gas supply , you may be able to charge the reduced rate of 5 per cent.

As long as at least part of the bill is paid for by qualifying grant, you may be able to charge the reduced rate on the amount of the bill that's grant-funded. But you can only charge the reduced rate if all of the following apply:

  • the person you do the work for is receiving a benefit that qualifies, or they're aged 60 or over
  • you do the work in their only or main home
  • the work is covered by a grant made under a scheme to fund energy efficiency measures in the homes of people who are less well off

You can see a list of qualifying benefits and find out what types of grant are eligible in the section above on installing grant-funded heating equipment and security goods.

Installing a gas supply in a residential caravan park

If you carry out certain civil engineering works for a new residential caravan park these can be zero-rated. Civil engineering work that qualifies for zero rating in this situation includes installing mains gas, electricity and water supplies.

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Customer declaration - grant-funded installations and mobility goods

If you charge the reduced rate of VAT on an installation for someone who qualifies because of their age - or because they're on benefits - then it's a good idea to get a written declaration from them for your records.

The declaration should be separate from, or at least clearly distinguishable from, any order form or invoice for the goods and services you've supplied. So a customer who signs an order shouldn't automatically be signing a declaration that they're eligible for the reduced rate.

Grant-funded installations of heating equipment and gas connections

You can only charge the reduced rate on qualifying installations you do for householders who are either aged 60 or over, or on benefits. So it's a good idea to ask them to give you a written declaration to confirm this. It should show:

  • their name
  • the address of their property
  • a statement that they're either aged 60 or over, or that they receive one or more qualifying benefits

Mobility aids for elderly people

You can only charge the reduced rate on qualifying installations you do for people who are aged 60 or over. So it's a good idea to ask them to give you a written declaration to confirm this. It should show:

  • the name of the person in the house who's aged 60 or over
  • the address of the property
  • a statement that they're aged 60 or over

If the person can't make a declaration personally

If the person you installed the goods for can't make the declaration personally, perhaps because they have a disability or they're unwell, then you can get one of their friends or relatives - or another responsible person - to do it for them.

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