Liability of Building Works for Mixed Use Property
VAT Question
My VAT-registered client has purchased a property consisting of a single shop on the ground floor and 2 residential flats on the first floor.
The client is to renovate and refurbish the commercial ground floor, converting it into two commercial units, completely refurbish the two existing flats on the first floor, and apply for planning permission to add another floor in which two further flats will be created.
What VAT rate will apply to the work done by the building contractor employed to do the job?
VAT Answer
Due to the mixed nature of the property, different aspects of work carried out by the contractor will be subject to VAT at different rates.
Ground floor
Work to the commercial ground floor, both the renovation and the change from 1 to 2 commercial units, along with any materials provided as part of those works, will be subject to VAT at the standard rate (20%).
First Floor
The VAT rate to be charged by the contractor on the renovation and refurbishment of the existing flats on the first floor will depend upon whether the flats have been used for residential purposes in the 2 years immediately prior to the building contractor starting his work.
If the flats have been used for residential purposes in those 2 years, then the work will simply be subject to VAT at the standard rate.
However, if those flats have not been used for residential purposes in those 2 years and your client can provide the contractor with appropriate documentary evidence of this fact, then the building services and related building materials supplied by the contractor will qualify for the reduced rate of VAT (5%), under the rules discussed in section 8 of HMRC’s VAT Notice 708.
Proposed new second floor
Assuming that the 2 flats created within the new 2nd floor are self-contained and meet the conditions for being considered new dwellings, as per section 14.2.1 of the same VAT Notice 708, the building services and related building materials supplied by the contractor to create these new flats will be zero-rated.
However, if the contractor supplies any goods that are specifically excluded from being building materials as defined in the VAT Act and discussed in section 13.2 of VAT Notice 708, the supply of those goods will not be covered by the zero-rating and so will be subject to VAT at the standard rate.
Work that relates to the building as a whole
There will be certain jobs that do not specifically relate to a specific floor, etc., such as the stairwell that accesses all upper floors, the roof (whilst the roof sits on top of the 2nd floor, it is the roof for the whole building), etc.
The contractor will therefore need to apportion the VAT rate on such work between the standard rate, possibly the reduced rate, and the zero rate.
https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8
For more information, please contact us at: consultancy@vantagefeeprotect.com
Related VAT Questions
LLPs and the Private Tuition Exemption
My client is a partnership of a number of individuals providing swimming lessons to children. Currently their tuition is exempt from VAT, but as the business has become more successful, their liabi
VAT Recovery on Residential Refurbishment
A common question asked is whether VAT incurred on the costs of renovating/refurbishing a residential property – whether for sale or leasing out – is recoverable.
Treatment of Stock and Assets at Deregistration
My client recently bought a van and claimed back the VAT. Their taxable turnover has now gone below £88,000. If my client cancels their VAT registration, do they need to pay back the VAT they have
My Client is Only Just Over the VAT Registration Threshold!
I have just completed my client’s income tax self-assessment for the tax year ending 5 April 2024 and have noted that the client’s turnover went over the VAT registration threshold in March
Supply of E-Publications
My client has their own website on which they make sales of e-books, which are downloaded by customers worldwide. My client’s customers are consumers rather than businesses, and these e-books mee
Train Hire for the Purpose of Providing Santa Specials
My client is a historic railway. In previous years they have sold Santa Specials; however, this year a third-party company will organise and sell the Santa Specials to the end customers. My client
Real people, real results
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
Don’t be shy,
get in touch
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
"*" indicates required fields