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If you carry out building or construction work on a building you must normally charge VAT at the standard rate. But some work you do on a new house or flat might be zero-rated - so you won't have to charge VAT on it.
You can only zero-rate your work if certain conditions are met. These relate to different aspects of the work, including:
It's important to check the position carefully before you zero-rate your work.
This guide will help you understand what you have to do about VAT if you're a builder working on new houses or flats.
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Normally building work is standard-rated for VAT purposes. But if you're a builder or similar trade - like a plumber, a plasterer or a carpenter - you may be able to zero-rate the work you do on a new house or flat. If you can zero-rate your work, this applies to both your labour and your materials costs in most cases.
When you build a new house or flat you can only zero-rate your work if certain conditions are met. The conditions relate to:
If the work involves materials being supplied, these also can only be zero-rated if certain conditions are met.
The sections below explain the conditions that have to be met before you can zero-rate your work and materials on new houses and flats.
The new house or flat you're working on will only qualify for zero-rating if it meets all of the following requirements:
You're working on the building of a 'granny annex'. This isn't a new house or flat because it's an addition to an existing house. The granny annex can only be sold if the main property is also sold. So although it's new living accommodation, it doesn't meet all of the requirements and it's standard-rated for VAT.
A new property you're working on might have a mixed use - for example, it might be a shop with a flat above it. Only the work on the new flat is zero-rated. You must charge VAT at the standard rate on the work that you do on the shop.
If you're only working on the zero-rated part of the building then you charge VAT at the zero rate. You charge VAT at the standard rate if you're only working on the standard-rated part. But you'll need to split your charge between the zero-rated part of the property and the standard-rated part if your work relates to both. It's up to you how you decide to split (or 'apportion') your charge between the two - but it must be done fairly.
You're fitting windows to a new property that will include a shop and a flat. You can only zero-rate the value of your work - your labour and materials - on the flat. You must charge VAT at the standard rate on the windows you fit for the shop. You could decide to do this on a time basis for your labour charge and on a cost basis for the windows.
You're only considered to be building a new house or flat if it's genuinely new. This means that if there was an existing building on the site it must have been demolished completely to ground level. You can leave any cellars, basements and the slab.
If you're building against a wall that's shared with another property - often called a party wall - then there's no need to demolish this wall for the building to count as a new house or flat. But if you're redeveloping two joined terraced houses, you'd need to demolish the party wall that's between them.
The building will still qualify as a new house or flat if you leave a single façade above ground level - or a double façade on a corner site - as long as both of the following apply:
If you enlarge or extend an existing building the work may also qualify for zero-rating so long as all the conditions are met. For example, you might build a new flat on top of an existing block of flats, or add some new houses to an existing terrace. These would count as new flats or houses and you could zero-rate the work.
If you build a garage or convert a building into a garage at the same time as a new house or flat is being built then this work also qualifies for zero-rating. But other buildings - like pool houses - wouldn't qualify.
You can zero-rate the work you do on the building before it's completed. There's no particular rule to say when a building is completed - it could be when any of these points is reached:
So long as it's closely connected to the building project, you can also zero-rate work that you do:
The work must be part of the same construction project and done reasonably close to the time the construction's carried out. So a site being cleared before a construction project was even in place would have to be standard-rated, for example.
You can zero-rate all of the following work:
You can't zero-rate work you carry out on the building once it's been completed. The only exception is if your work relates to correcting defects in the original building work. This type of correction work is usually described as 'snagging'.
You are asked to go into a house that's now being lived in to redecorate a room. If this is because the original decorating work that was done when the house was first built is faulty, then you can zero-rate the charge you make for the work. But if the reason for your work is because the new owners don't like the colour of the original paint, then you must charge VAT at the standard rate. This is because the purpose of your work in this situation isn't to correct defects.
You can zero-rate the work you do on the building itself - as long as the work relates to its construction. This also applies if you're a sub-contractor who's working for another builder. You can also zero-rate work that is closely connected to the building project.
Work that counts as being closely connected with a building project falls into two categories:
See the section in this guide on when your work has to be done for more about work done before the project starts.
You can zero-rate all of the following work:
If you hire out goods to your customer then you must always charge VAT at the standard rate. But if you supply plant with an operator - like a crane and a driver - then you can zero-rate the charge as long as you meet all the other conditions for zero-rating.
If you hire scaffolding to a customer on its own, then you can't zero-rate your hire charge. But you can zero-rate any charge you make for erecting or dismantling it as long as the other conditions for zero-rating are all met.
Professionals like architects, designers and surveyors must always standard-rate the services they supply. But if you provide a single 'design and build' contract to a customer for a new house or flat then the whole of what you charge qualifies for zero-rating. A design and build contract means that the architect or designer is working for you and not for your customer.
You can't zero-rate the following work:
You can normally zero-rate the materials you use if you're building a new house or flat that qualifies for zero-rating - but it does depend on what the materials are. There are special rules for what counts as building materials for VAT purposes.
To be zero-rated, the building materials must meet all of the following conditions:
If you supply materials that don't meet the conditions listed above then you'll need to standard-rate them. These include:
If you're fitting or installing materials that qualify for zero-rating in a new house, then you zero-rate your installation services too.
If you're fitting or installing materials that don't qualify for zero-rating - like carpets - in a new house then you can still zero-rate your labour charge as long as you show it separately in your invoice to your customer. You must standard-rate the materials.
If you supply and install a fridge in a new house for an inclusive charge of £100 then you'd have to charge VAT at the standard rate on £100.
But if you charge £80 for the fridge and £20 to install it and you show them separately, then you only charge VAT on the sale of the fridge - £80. You can zero-rate the £20 charge for installing it.
If you're acting as a developer and you build a new house or flat as a business project, rather than to live in yourself, then you may be able to zero-rate the sale of the property. A zero-rated sale of a new house or flat means you're selling either:
You can only zero-rate it if you're selling the first freehold or long lease in the building.
If you're making a zero-rated sale as a developer then you may be able to reclaim the VAT you've spent on buying goods and services for the property.
There are certain situations when the sale of your new house or flat may not be zero-rated. Examples of when you'd have to standard rate the sale include:
If you make a zero-rated sale of a new house or flat, you can't reclaim the VAT on items you've included in the property if they aren't classed as building materials.
You can't reclaim the VAT on building materials unless both of the following conditions are met:
A washing machine needs tools to fix it in a building, but it isn't a building material on which VAT can be claimed. It's classed as a white good along with items like fridges, freezers, dishwashers and cookers. VAT can't be reclaimed on white goods.
If you can't zero-rate the sale of the new house or flat you've built: