5% Vat how?

[canalsiderenovation]

I've just had an email from one of the two builders for pricing.

 

As part of the extension and renovation we will have asked for an improvement in floor, roof and wall insulation to the existing property as we want to make sure our house is thermally efficient to go with the ASHP and underfloor heating.

 

One question I have is the builder has said this:

 

We have been working on a job in the last year which is in a similar situation to yours. We have built a big extension on a farm house and thermally upgraded the existing house. On that job all of the thermal upgrade and associated costs have been done at 5% vat. The client looked into it extensively and it qualified for the reduced rate. I don’t see how your situation is any different. You would need to look into it but the costs for thermal upgrading the floor, walls & roof may be able to be done at 5%, not 20% which would be a big saving.

 

So how do you end up only paying 5% VAT?

 

[nod]

You would need to check yourself with HMRC I’ve been renovating a factory for the past year half is 20% The other half is 5 %
Ive been in business for 35 years now and still get caught out 

 

[PeterW]

The 5% rules are here and it has to be supply and install 

 

https://www.gov.uk/tax-on-shopping/energy-saving-products

 

[Oz07]

Also valid for renovations on properties unoccupied for 2 years. Again no self claim method has to be supply and fit through contractor 

[canalsiderenovation]

It's very confusing and contradictory. It appears then that if our builder is doing this work then he would only charge us 5% but there is lots of clauses, e.g. 60% rule etc.

[Temp]

I had to read up on that here..

https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086#para2-4

Fine example of government over complicating something.

 

2.3 Social policy conditions

The installation of energy-saving materials in residential accommodation is reduced rated when any one of the social policy conditions is satisfied.

 

The first condition is that the supply of the installation is to a ‘qualifying person’ in the qualifying person’s sole or main residence. A qualifying person is defined in legislation as a person who is aged 60 or over, or is in receipt of one of the following benefits:

Snip

[Temp]

Continued...

 

2.4 The 60% test

Where the social policy conditions are not met, it is necessary to apply the 60% test to a supply of installing energy-saving materials. The business, which provides the services of installation, has to calculate the VAT to charge.

It must first establish the price that it paid to purchase the materials (excluding VAT) used in the installation and calculate this as a percentage of the total value of its supply (excluding VAT) to its customer. The materials that must be included in this calculation are all of the goods supplied to the customer as part of the installation which remain in place once the job has been completed.

For example, a business installs insulation in a residential property. It pays £400 (excluding VAT) for the insulation material and charges its customer £1,000 (excluding VAT) for the installation. Since the cost of the materials to the business is only 40% of the value of the supply that the business makes to its customer, the business can charge the reduced rate of 5% on the total supply, that is 5% of £1,000 = £50.

However, where the 60% threshold is exceeded (that is, where the percentage is 61% or more using normal rounding conventions), the business will need to carry out an apportionment. This requires the business to apportion the value of the total supply that it makes to its customer, between materials (which will be standard rated) and labour (which will be reduced rated).

For example, a business carries out an installation of solar panels combined with a battery. It pays £5,000 for the solar panels and battery (excluding VAT) and charges its customer £7,500 (excluding VAT) for the installation. Since the cost of the materials to the business is 67% of the value of the supply the business makes to its customer, the 60% threshold is exceeded. This means that the business will need to separately identify the value of the materials supplied to its customer and charge VAT at the standard rate on the supply of those materials. The labour element of the supply will continue to qualify for the reduced rate.

 

 

So basically your builder has to do the calculation.

[canalsiderenovation]

Yes, seems so. We don't meet any of the social conditions.

[Oz07]

Just ran the numbers for that example for fun. 

At 7500 with vat split at 20% of 5k and 5% of 2500 total cost to end user is 8625 with 1125 of that vat payable. 

If contractor increases cost of job to 8334 net to get 60% then total cost to end user is 8750 but only 416 of that vat. 

 

Wonder why vat man have these little rules?

[Oz07]

Contractor would be better off bunging customer 200 cash back after the job and going with latter option

[PeterW]

Or alternatively the contractor on a job this size does the insulation and ASHP as an entirely separate job where the magic 60% just happens to work in everyone’s favour .......

 

I think that’s called tax avoidance .. ?

[Oz07]

I think there is a rule for that too. I upgraded some sash windows with slim line units for some elderly customers a couple of years ago I did look into reduced rate but didn't qualify for whatever reason.