When Does My Builder Need to Charge VAT?

The basic rule about paying VAT for a company is based on their turnover, so if a business turnover is in excess of £85,000 they need to be registered for VAT and will charge it on their goods and services. The current rate for VAT is 20% in the UK.

This is therefore a good indicator to the size of the company you are dealing with and if you are getting them to quote for a large renovation that is in the tens of thousands but they are not VAT registered then perhaps you should ask why, as they are either flying under the HMRC radar or perhaps have never undertaken such a large project before, both could be potential red flags.

Do not be afraid to ask these questions. You want to feel confident that the firm you take on is fully experienced in big projects and has the capacity and breadth of knowledge and team size to cope with the workload.

So, VAT should be charged if the company is VAT registered. However, there are times in building that things are VAT exempt. For example, new builds would be classed as zero rated, so no VAT would be charged. This also applies to communal buildings such as care homes or student accommodation. Adaptations for disabled people can be exempt from VAT if they qualify (similar to council tax reduction rules they apply to things such as ramps, widening doorways and bathroom works).

There is a reduced VAT rate of 5% that is charged in some cases:

• If property has been empty for 2 years or more.
• If you are installing qualifying energy saving products.
• If you are installing certain grant-funded heating and security equipment for people over 60 or on benefits.
• If you are converting a building into a house or flats or from one residential use to another.

The rate of 5% only applies is the whole of the work carried out falls into one of the categories, for example, if you have an extension built but part of it is a converted bathroom and ramp to the new door, this will all be charged the full rate of VAT which is 20%, because only part of it is a qualifying category.

The full list of exemptions and reductions can be found on HMRC’s website https://www.gov.uk/vat-builders

Invoices containing VAT should always clearly state this and it should be shown separately on the invoice, so you know the amount exclusive and inclusive of VAT. The invoice should also show the VAT registration number for the company. As above if there are cases when it is exempt or charged at a lower rate this should also be indicated.

The invoice will contain the VAT registration number so you can then check this and ensure it matches the company. You can either call the HMRC VAT helpline on 0300 200 3700 or use the website http://www.bytestart.co.uk/checking-to-see-if-a-vat-registration-number-is-valid.html and it will match the number to a company.

It may seem like a lot to take in, but it doesn’t hurt to know the rules as then you can ensure you are charged correctly by your builder.