VAT rate charged by Builder?

[Fiona Q]

Wonder if someone can advise?  We are converting an old cottage and barn and my builder is charging 20% on all invoices.  I have read quite a bit about VAT rates - 20%, 5% and O%.

The issue is some people count this as a new build and others a barn conversion.... although it was a cottage and barn attached it was last lived in 1937.

Can any one help re claiming the VAT back?  I know this has to be done once the build is complete.

thanks Fiona

 

[IanR]

Are you saying no part has been lived in since 1937?

 

If so, I believe your builder should be charging you 5% VAT for labor and materials (20% for any materials on their own), which you can recover at the end if you plan to live in it yourself. 

 

Renovation and alteration of any residential building that has been empty for at least 2 years prior to work starting is rated at 5%.

 

Likewise conversion of non-resident building to resi is also rated at 5%.

 

You can't recover incorrectly charged VAT, so you'll need to get your builder to re-present his invoices showing 5% VAT

Edited March 24, 2023 by IanR

[Fiona Q]

Yes that correct - it has not been lived in since 1937 and was latterly used as a barn/lambing shed.  Thank you so much - that's really useful and yes we will be living in it ourselves.

[Temp]

As the cottage has been unoccupied for more than 10 years it's renovation should be zero rated to you.

 

A barn conversion would normally be 5% rated to you but you can reclaim itnat the end.

 

Because you have a combination I'm not sure what the rate should be. I would ask on the HMRC VAT forum. Im away from my  PC at the moment so don't have the link handy but I have posted it before.

 

Important you get this sorted now because if HMRC decide it should all be zero rated you may not be able to reclaim any paid in error to the builder from HMRC. They may refer you to the builder. 

 

I think it likely the whole lot should be zero rated to you.

 

[IanR]

18 minutes ago, Temp said:

As the cottage has been unoccupied for more than 10 years it's renovation should be zero rated to you.

 

That made me check my facts, but I can only find the 2 year rule, ie. Reduced rate of 5% VAT for properties empty more than 2 years, which can then be recovered at the end if it's a self-build.

 

Ref. 8.1.1

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8

 

Have you got a link to the 10 year rule?

 

2 hours ago, Fiona Q said:

Yes that correct - it has not been lived in since 1937 and was latterly used as a barn/lambing shed.  Thank you so much - that's really useful and yes we will be living in it ourselves.

 

For the 2 year rule, the property has to have a residential Use class. Since the cottage itself has been used for a significant time with an agricultural Use, it may be considered that its Residential Use has been abandoned.

 

Not that that's an issue though, as the whole property would then fall into the conversion of non-Resi (Agricultural) to Resi, and so it qualifies for the reduced rate at 5% anyhow.

 

What type of planning permission do you have for the works? Is it a "Conversion of X to Y", or "Change of Use to Residential", or is it an "Extension"

Edited March 24, 2023 by IanR

[Conor]

Bare in mind you won't be able to reclaim any vat that the builder has incorrectly charged you. You'll need to go back to them and reissue invoices and something like a credit note that can be balanced off your next payments to them. 

 

If buying materials yourself, make sure the invoices / receipts have your name and the site address on them.

[Temp]

7 hours ago, IanR said:

 

That made me check my facts, but I can only find the 2 year rule, ie. Reduced rate of 5% VAT for properties empty more than 2 years, which can then be recovered at the end if it's a self-build.

 

Ref. 8.1.1

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8

 

Have you got a link to the 10 year rule?

 

 

The ten year rule is in vat 708.  In section 5.

 

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section5

 

It looks like I'm wrong on how the 10 year zero rate is implemented. This suggests you pay 5% and reclaim it in the same way as a barn conversation 

 

https://community.hmrc.gov.uk/customerforums/vat/d1f18778-57bb-ec11-bea1-00155d974ab6

 

 

Edited March 25, 2023 by Temp

[nod]

I’ve been vat registered for 35 years and still get caught out It’s an absolute minefield Recent changes to end user has helped But I’ve always followed If you can’t establish the rate Charge the full amount If he undercharges He will be liable to pay the difference out of his own pocket 

His accountant has probably less idea than he has He is correct in what he is doing 

 

You need to contact HMRC and get a simple email from them stating the vat rate that is liable Then show it to him 

Pretty much like a self builder would be asked for there planning permission ref to zero rate 

[Temp]

HMRC VAT forum here..

 

https://community.hmrc.gov.uk/customerforums/vat

 

 

[Fiona Q]

On 24/03/2023 at 23:28, Temp said:

As the cottage has been unoccupied for more than 10 years it's renovation should be zero rated to you.

 

A barn conversion would normally be 5% rated to you but you can reclaim itnat the end.

 

Because you have a combination I'm not sure what the rate should be. I would ask on the HMRC VAT forum. Im away from my  PC at the moment so don't have the link handy but I have posted it before.

 

Important you get this sorted now because if HMRC decide it should all be zero rated you may not be able to reclaim any paid in error to the builder from HMRC. They may refer you to the builder. 

 

I think it likely the whole lot should be zero rated to you.

 

 

[Fiona Q]

thanks so much - will try the Forum as recommended - I have tried and tried to get through to HMRC on the phone to no avail....

 

 

[Fiona Q]

On 24/03/2023 at 23:44, IanR said:

 

That made me check my facts, but I can only find the 2 year rule, ie. Reduced rate of 5% VAT for properties empty more than 2 years, which can then be recovered at the end if it's a self-build.

 

Ref. 8.1.1

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8

 

Have you got a link to the 10 year rule?

 

 

For the 2 year rule, the property has to have a residential Use class. Since the cottage itself has been used for a significant time with an agricultural Use, it may be considered that its Residential Use has been abandoned.

 

Not that that's an issue though, as the whole property would then fall into the conversion of non-Resi (Agricultural) to Resi, and so it qualifies for the reduced rate at 5% anyhow.

 

What type of planning permission do you have for the works? Is it a "Conversion of X to Y", or "Change of Use to Residential", or is it an "Extension"

The planning permission states - "Conversion of existing barn and restoration of existing dwelling" 

[Fiona Q]

On 24/03/2023 at 23:28, Temp said:

As the cottage has been unoccupied for more than 10 years it's renovation should be zero rated to you.

 

A barn conversion would normally be 5% rated to you but you can reclaim itnat the end.

 

Because you have a combination I'm not sure what the rate should be. I would ask on the HMRC VAT forum. Im away from my  PC at the moment so don't have the link handy but I have posted it before.

 

Important you get this sorted now because if HMRC decide it should all be zero rated you may not be able to reclaim any paid in error to the builder from HMRC. They may refer you to the builder. 

 

I think it likely the whole lot should be zero rated to you.

 

thank you - I have been trying to contact HMRC for a definitive answer but they never answer the phone or I am cut off!  Does anyone know if there is an email address for them?

[Temp]

I've had good response times on the forum but check replies are HMRC staff. Typically had answers in a day or two.

[Fiona Q]

Will try and get clarification from the HMRC Forum - thanks for the feedback 

[Fiona Q]

Have posted a question on the Forum so just waiting for it to be approved.