Reduced rate VAT for landlordsMake Text Bigger
Businesses, tradesmen, and contractors, are overcharging VAT to customers.
Homeowners, property developers, and landlords, are routinely being charged VAT at the standard 20% rate, for works which should qualify for a reduced VAT rate.
Most accountants don’t pick up on this, or don’t even know about it, (I asked several accountants and some bookkeepers), so both the landlord (customers), and also the building contractors/businesses themselves, end up paying more VAT than they need to.
Reduced rates of 5% VAT (or zero rate) should be charged on some works, e.g.
Installation of energy saving materials, including TRVs (thermostatic radiator valves) and heating controls.
Renovation or alteration of some empty properties.
Converting commercial premises into residential premises.
Converting self-contained residential property into houses in multiple occupation (HMOs).
Alterations carried out to suit the needs of disabled people.
Where these reduced rates apply, they affect not only the labour cost of works carried out, but also the VAT applied to all materials used.
See “VAT Notice 708: buildings and construction” for full details, and stop overcharging/overpaying tax.
This notice explains when building work/materials can be zero/reduced rating, when developers are blocked from deducing input tax, the issuing of certificates and time of supply rules.
1.4 What law is covered in this notice?
The Value Added Tax Act 1994, Section 30 holds that goods and services specified in Schedule 8 to the Act are zero-rated.
Schedule 8, Group 5 (as amended by SI 1995/280, SI 1997/50, SI 2001/2305, SI 2002/1101 and SI 2010/486) specifies when the construction (and the supply of building materials with those services), conversion of a non-residential building (and the supply of building materials with those services), sale, or long lease of a building is zero-rated.
Schedule 8, Group 6 (as amended by SI 1995/283, SI 1995/1625 (NI 9) and the Planning (Consequential Provisions) (Scotland) Act 1997) specifies when the alteration (and the supply of building materials with those services), sale, or long lease of a protected building is zero-rated.
The Value Added Tax Act 1994, Section 29A (as inserted by the Finance Act 2001, section 99(4)) holds that goods and services specified in Schedule 7A to the Act are reduced-rated.
Schedule 7A, Group 6 (as inserted by Finance Act 2001, section 99(5) and amended by SI 2002/1100) specifies when a residential conversion is reduced-rated.
Schedule 7A, Group 7 (as inserted by Finance Act 2001, section 99(5) and amended by SI 2002/1100 and SI 2007/3448) specifies when the renovation and alteration of a dwelling is reduced-rated.
Schedule 10, Part 2 (as amended by SI 2002/1102 and SI 2011/86) specifies when a taxable self-supply arises should the qualifying use of a certificated building cease or decrease or the building be disposed of.
The rules that ‘block’ developers from deducting input tax on goods that are not building materials are found in the VAT (Input Tax) Order 1992 (SI 1992/3222), articles 2 and 6 (as amended by SI 1995/281).
The special time of supply rules for builders are found in the Value Added Tax Regulations 1995 (SI 1995/2518), Regulations 89 and 93 (as amended by SI 1997/2887 and SI 1999/1374).
The rules for the self-supply of construction services are found in the Value Added Tax (Self-Supply of Construction Services) Order 1989 (SI 1989/472).
2. VAT liability
2.1 Construction services
The construction of a new building and work to an existing building is normally standard-rated. There are, however, various exceptions to this.
Information about these exceptions can be found at the following sections:
|Construction Service||Rate of VAT||Further Information|
|Construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities.||0%||Section 3|
|Conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building.||0%||Section 6|
|Conversion (other than for housing associations) of a non-residential building into a qualifying dwelling or communal residential building and conversions of residential buildings to a different residential use.||5%||Section 7|
|Renovation or alteration of empty residential premises.||5%||Section 8|
|Approved alterations to listed dwellings and communal residential buildings, and certain listed buildings used by charities (rate shown with effect from 1 October 2012)||20%||Section 9|
|Alterations to suit the condition of people with disabilities.||0%||Notice 701/7 VAT reliefs for disabled people|
|Installation of energy saving materials; and grant funded heating system measures and qualifying security goods.||5%||Notice 708/6 Energy-saving materials|
|Development of residential caravan parks.||0%||Section 20|
|First time gas and electricity connections||0%||Notice 701/19 Fuel and power|
|Installation of mobility aids for the elderly for use in domestic accommodation||5%||Reduced-rate VAT on mobility aids for older people|
|Home improvements on domestic property situated in the Isle of Man||5%||Isle of Man VAT Notice Home improvements available from:
Isle of Man Customs and Excise Advice Centre
(Telephone: 01624 648130)
A combination of buildings may form a single dwelling, provided they are designed to function together for that purpose. For example, where you have two buildings, one building may comprise a lounge and kitchen, and the other comprises the bedrooms and bathroom. The buildings must be constructed or converted under a single project and single planning consent.
2.1.1 Which VAT rate do I charge?
You must charge the lowest rate applicable to your supply. For example, you may be carrying out an approved alteration to an empty listed dwelling. This work is zero-rated as an approved alteration of a listed dwelling rather than reduced-rated as an alteration of an empty dwelling.
You can only zero-rate or apply the reduced rate to your supply to the extent that it is within the relevant rules, with your charge being apportioned as appropriate on a fair and reasonable basis. In some cases, however, you can standard-rate the whole of your supply if you decide not to make an apportionment. This is explained in the relevant sections of this notice.
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