Groundwork contractor and VAT

[DreamHouseDreamer]

I'm aware on a new build self build you should not be charged in the first place any VAT by your builder for any labour, and you cannot claim it back afterwards.

 

However, where do we stand regarding employing a ground worker to do lots of prep work on site (before he can even start digging holes!)?  What about any items he needs to hire in like skips, Heras fencing?

 

Thanks for guidance.

 

DHDreamer

[newhome]

That should come under work closely connected to the construction of the building in VAT Notice 708 so can be zero rated as long as planning permission is in place. If the builder provides equipment such as skips etc and it is all invoiced as part of the main work then that should also be zero rated. If it's on a separate invoice it can't be. When you say Heras fencing are you meaning that the ground worker will bring this in and remove it again when he has finished the groundworks as you will then need more for when the real construction starts presumably? 

 

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction

 

Quote

3.3.4 Work closely connected to the construction of the building

 

Subject to sub-paragraph 3.3.6, your work is closely connected to the construction of the building when it either:

(a) allows the construction of the building to take place, such as when you:

demolish existing buildings and structures as part of a single project to construct a new building or buildings in their place (please note that the granting of a right to remove materials is not the supply of demolition services and is standard-rated) * provide or improve an access point to a building site to allow deliveries to be made

carry out ground works (including the levelling and drainage of land) as part of the process of constructing a new building or buildings in its place

provide site clearance or ‘builders’ clean’ services

secure the site

 

[DreamHouseDreamer]

Thank you very much.

 

Planning permission is in place.  Work cannot actually commence until a few conditions are met and signed off, but we are trying to get our ducks in a row so that work can start the moment that comes through.  The groundworker seems a bit vague about these things, and I'm becoming increasingly aware that if you need to have invoices correct in the first place, not just itemising things with correct wording in some cases, but also showing VAT or zero VAT as appropriate, to ensure all paperwork is correct.

 

As the current plan is for the groundworker to do the first bit of work and then the last bit of work, we need to discuss the skip situation, but at least I know they can be zero rated.  We have already agreed that the Heras he supplies will remain in place during the whole build to protect the site and secure materials and meet H&S requirements.  I assume that would be OK?

 

DHDreamer

Edited January 12, 2019 by DreamHouseDreamer

[newhome]

So for clarity the builder should charge the VAT rate appropriate to the main element of his work (in this case the groundworks) and all other elements should also be charged at this rate as long as they are needed for the job and invoiced as a 'package of work'. So a groundworker who is charging you for groundworks and needs skips, machinery, security fencing should be able to charge zero rate as part of the arrangement as it is necessary for the job and "closely connected to the construction of the building".

 

You start to push the boundaries if you ask him to provide Heras fencing and leave it up for the duration of the build because you can't argue that the work he is doing requires fencing to be installed for months after the groundworks are complete. So if you are strictly following the guidance in VAT Notice 708 (that VAT registered builders are obliged to follow) then no he can't really zero rate the Heras fencing beyond the point when his job has completed IMO.

 

That said what matters is what the builder is willing to do for you. I had a couple out to quote who refused to zero rate anything at all. I think they thought I was on some massive fiddle and no attempt at explaining the new build rules would persuade them otherwise so I didn't use them. If you use a non VAT registered builder (for others who may be reading this as I believe that your prospective builder is VAT registered) although they won't charge you VAT on their labour they will have no choice but to pay VAT on the skip hire etc so you will end up paying the VAT on those things too. Similarly if a non VAT registered builder supplies materials.

 

So ultimately you need to have a chat with the builder and agree the rules of engagement in respect of the VAT for your build. As I found out you can quote what you like at them but if they are not willing to do it that way then you are stuffed. 

[DreamHouseDreamer]

newhome - thank you so much for reverting and adding more flesh on the bones of this subject.  I can see now that the gap when the ground worker is off site during the construction period and before he returns to make good and do any work we choose to further employ him for like hard landscaping/driveway is something that we need to resolve.

 

So we need to speak to the builder about that, too.  I already had the scaffolding question for him, anyway.

 

Thanks again.

DHDreamer

 

[newhome]

Similarly the main builder can provide the scaffolding (and any machinery) as part of his package of work and it can be zero rated, but if you hire any of those separately you will need to pay VAT although even then there are some bits that can be zero rated. Scaffolding erection and dismantling fees can be zero rated but the hire charges cannot, and if your hire machine arrives with an operator it can be zero rated and if not you will pay full VAT. It's a minefield and often builders won't know the regulations that well so if they charge you VAT @ 20% on everything they believe that they are covering themselves in case they have made a mistake and undercharged. 

 

Do think things through and ensure that the price you are paying a builder to have all of these extra things included isn't more than you could hire them for yourself even paying the VAT. Builders are going to want to make a profit - they aren't going to supply these things to save you money ordinarily. Paying the appropriate amount of VAT is important but getting the maximum amount zero rated is not THE most important thing in the great scheme of things so keep your thinking flexible when it comes to deciding how to source these things that ordinarily have VAT added to them. I don't want to tempt fate but the idea that you may have the same groundworker back later may not be how things turn out. Sadly there are many occasions where you end up parting company with a builder for various reasons or resolve not to have them back. I wouldn't want to have tied my builder in to do anything beyond what I had originally asked him for on the strength of him having left some Heras fencing on site for me. Every job really needs to be specified and quoted at the appropriate time and you need to retain the flexibility to choose who you use at every stage of the build. 

[DreamHouseDreamer]

OK.  So ensuring that all main contractors are registered for VAT so that their relevant invoices are zero rated makes sense. 

 

However:

 

Owing to the needs of our build, we will have 3 main contractors, of which one is the ground worker.  I can see now that a reason our preferred one is so much cheaper than the others (but this question was asked of none!) may be that he's not registered for VAT.  As well as being the cheapest, he was also the most recommended one - head and shoulders above all the others we spoke to or got as far as discussing details and getting quotes and following up references, etc.

 

He suggests that he is able to provide invoices correctly worded so that we can claim the VAT back at the end.  Is that true?  Will that be a headache?

 

I am assuming that we will always need to get some VAT back on certain purchases or jobs carried out but are trying to keep the numbers of contractors and items needed to be claimed back afterwards to a minimum for obvious reasons. 

 

In terms of the financials, the VAT issue seems to be the thorniest issue self builders need to get their heads round.  I hope that's correct and there's not something else that I don't yet know about to juggle.

 

Thanks again,

DHDreamer

[newhome]

You can't reclaim any VAT via invoices a builder supplies you with either VAT registered or not. Those that are VAT registered must zero rate their labour and materials when they invoice you. Those who are not VAT registered zero rate their labour but cannot zero rate the materials so you will have to pay the VAT that the builder paid on those. So the builder is wrong I'm afraid. He also can't order any materials on your behalf and give you the invoice to reclaim the VAT as the invoice MUST be in your own name for the reclaim scheme. The only way of working with this guy (if he is not VAT registered) is for you to have an account at the builders merchant and for him to order materials that you pay for. He may not like that as he will likely make a bit of profit on materials if he buys them.

 

The VAT reclaim scheme is for qualifying materials only that you buy yourself during the course of the build. No labour, no services, no 'jobs' can be reclaimed. It should all be explained in this thread:

 

 

 

 

 

[DreamHouseDreamer]

Once again, thank you. 

 

Oh, dear, though!

 

DHDreamer

[andy]

Hi

 

Quick related question on this, should structural engineering works be zero VAT rated?  This is for the foundation designs for the new house as per planning permission.

 

At present my quote includes VAT but I'm not sure that's correct after reading the input from @newhome

 

Thanks

 

P.S. Scrap that - just checked your main post on VAT and it seems VAT is chargeable for structural engineers, alas!

 

P.P.S.... Looks like it can be if my interpretation of this is correct:

 

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction#zero-rating-the-construction-of-new-buildings

 

3.3.6

"civil engineering services are supplied to a landowner for the purposes of servicing a building plot and it is clear that the construction of a building that qualifies for the zero rate will take place shortly afterwards, or"

Edited January 14, 2019 by andy
Updated again...

[newhome]

Yes sorry separate structural engineer fees are standard rated. You will only get them zero rated if (for example) you order a timber frame kit and they include the structural engineer’s design for the frame as part of the package. 

[newhome]

2 hours ago, andy said:

 

P.P.S.... Looks like it can be if my interpretation of this is correct:

 

I see that you added this bit after I replied. That section is interesting and I don’t know in truth! Structural engineer fees have always been standard rated afaik and that section mentions civil engineers. A civil engineer will do slightly different things I believe but whether the statement could apply to a structural engineer I’m not sure. @Temp are you able to interpret 3.3.6 please? 

 

Here is the guidance from HMRC’s internal manual but it’s still non specific. 

 

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst02710

 

[andy]

Maybe worth a punt to my structural engineer and see what they say...

[newhome]

5 minutes ago, andy said:

Maybe worth a punt to my structural engineer and see what they say...

 

Definitely. At the end of the day it’s what you can persuade them to do that counts. 

[andy]

Their take is that section 3.4.1 applies which is:

 

"3.4.1 Architects, surveyors, consultants and supervisors
The supply of architectural, surveying, consultancy and supervisory services is always standard-rated."

 

Is anyone aware of any case law that clarifies what the scope of 3.3.6 is?  I'd say it's as clear as mud!

[newhome]

3 hours ago, andy said:

 

Is anyone aware of any case law that clarifies what the scope of 3.3.6 is?  I'd say it's as clear as mud!

 

There are many things that appear to be unclear in VAT notice 708 IMO. So for example It states that site investigation is standard rated if it takes place before planning permission is granted but that only infers that it is zero rated if PP has been granted, and it doesn’t state that explicitly and nor does it explicitly state what site investigation comprises.

 

From piecing together the responses that others have received from HMRC over the years we are able to provide some ‘custom and practice’ guidance based on the experience of others. Essentially the type of investigations that appear to be eligible for zero rating have been those things where something is being physically done on site, so holes dug for investigation and the like, not just a visit followed by a desk exercise. In fact I wonder whether the term civil engineering is meant to mean things actually done on site, although the holistic term includes a variety of things including design so still clear as mud. 

 

There isn’t much case law for this type of thing through the DIY housebuilders reclaim scheme as this type of thing isn’t eligible for reclaim anyway but there may be some cases that builders have brought. I’ll have a look but seems unlikely because surely structural engineers would know that their work was able to be zero rated on new builds if that was the case. 

 

Where there have been cases that HMRC have lost these things tend to be added to the internal manual and there is nothing specific there afaik. 

[andy]

I spoke to HMRC who said write a letter (not email...).  Hopefully I’ll have an answer in a couple of weeks but I’m not holding my breathe about getting clarity even after getting a response!

[newhome]

So interestingly there are examples of what is meant by civil engineering further down in section 20 that covers zero rating for caravan sites rather than new builds but I suspect that the same sentiment applies. As I anticipated it's all 'doing' things rather than surveys. 

 

20.3 Is my civil engineering work necessary for the development of the park?

 

Examples of zero-rated civil engineering work include:

• laying new pitches or bases for the caravans
• laying new roads, drives, parking bays and paths
• installing water, electricity and gas supplies, and
• installing drainage and sewerage

[newhome]

Here is one such case that was found against HMRC and added to HMRC's internal manual but again it is 'doing' activity, ie construction of a sewage treatment plant. 

 

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst02560

 

And the further guidance on:

 

are my services supplied ‘in the course of the construction’ of the building' is again 'doing' work.

 

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst02570

[Temp]

22 hours ago, newhome said:

. @Temp are you able to interpret 3.3.6 please? 

 

I think 3.3.6 is more about HMRC trying to close loopholes that allowed people to zero rate work on a "plot" and then never build the house or on work done after completion.

 

"Design" services are standard rated as per 3.4.1. So if a civil engineer designs a retaining wall then it would be standard rated. I think if you hired a civil engineer to "design and build" a retaining wall as a package then the lot that would be zero rated to you. 

[Bitpipe]

On 14/01/2019 at 13:32, newhome said:

 

There are many things that appear to be unclear in VAT notice 708 IMO. So for example It states that site investigation is standard rated if it takes place before planning permission is granted but that only infers that it is zero rated if PP has been granted, and it doesn’t state that explicitly and nor does it explicitly state what site investigation comprises.

 

From piecing together the responses that others have received from HMRC over the years we are able to provide some ‘custom and practice’ guidance based on the experience of others. Essentially the type of investigations that appear to be eligible for zero rating have been those things where something is being physically done on site, so holes dug for investigation and the like, not just a visit followed by a desk exercise. In fact I wonder whether the term civil engineering is meant to mean things actually done on site, although the holistic term includes a variety of things including design so still clear as mud. 

 

Currently having this argument retrospectively with my ground investigation firm as their site work was invasive (digging holes etc) vs a simple walk over study. However there is an element of research and report writing which would be eligible for VAT.

 

They're saying that never in 27 years have they zero rated any services but I keep plugging away and sending them the relevant examples like above.

 

Unlikely to get the VAT (or part of) back but will keep bashing away as it costs me nothing