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Where Taxpayers and Advisers Meet

VAT charge on construction costs

live4today
Posts:7
Joined:Mon Oct 19, 2015 2:07 pm
VAT charge on construction costs

Postby live4today » Thu Jan 11, 2018 5:19 pm

Hi

Would appreciate your opinions:

I have managed to get planning permission to convert a shop into a flat and the garage (at the rear) into another flat. The area that was previously run as a shop has been used as a residence for a number of years (10+). Both flats will be completely self contained.

I now have a number of quotes to carry out the construction works and one of the contractors says that the works should be zero rated for VAT. With no VAT added to his quote, the total is within my budget. So, I have two questions:

1) Do you think that 0% or 5% VAT should be applied
2) If I go with this contractor and he charges no VAT, then HMRC state that VAT should have been charged, who is liable - me or the contractor?

I called the HMRC VAT helpline and they just said that we have to read VAT notice 708 and make a joint decision.

Thanks for any thoughts.

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: VAT charge on construction costs

Postby les35 » Fri Jan 12, 2018 9:34 am

Conversion works should probably be 5%, not 0%, but it does depend on the exact details of the project; will the new structure occupy the same footprint and space as the existing? How long since any part of the building was used as a residence? What is the wording of the Planning Application and Permission? Will you sell or let?
Ask a specialist to review and advise in detail; this will protect contractors and yourself.

live4today
Posts:7
Joined:Mon Oct 19, 2015 2:07 pm

Re: VAT charge on construction costs

Postby live4today » Tue Jan 16, 2018 1:24 pm

One of the flats will occupy the same footprint (replacing the garage and small extension above), another replaces the shop and basement and the third is as is (i.e. two bed flat above the shop), just being refurbished.

All of the building (except the garage) has been used as residential from 2005-2016.

We first applied for a certificate of existing lawfulness and have more recently gained permission to extend and reconfigure the split of the building.

We are planning on renting the units out for two years before selling.

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: VAT charge on construction costs

Postby les35 » Tue Jan 16, 2018 8:39 pm

My summary:
- conversions - 5%
- refurb - 20%, unless the flat has been empty for two years or more, which is 5%,
- if the contractor fails to charge VAT, and HMRC assess him; whether he can recover it from his customer depends on the wording of the contract; e.g: Price is inclusive of VAT,' or 'Price is net of VAT which is due.'
- where flats to be let, input tax is not recoverable; but, sale after 2 years may mean a Capital Goods Scheme adjustment.

Lots of variables; hence my suggestion to have proper paid for advic, so as to find the best solution.

davebrownvat
Posts:60
Joined:Mon Jul 20, 2009 4:37 pm

Re: VAT charge on construction costs

Postby davebrownvat » Tue Feb 20, 2018 1:51 pm

Apologies for the dumb question, but how can it be a shop conversion, when it has been used as residential for over 10 years?

And - if the garage has been used in conjunction with 'the residence', that is also deemed to be residential.

And - if you have applied for a certificate of lawful use (as a residence), your starting point on day 1 is that it is a residential property, so no conversion and no 5% VAT rate, unless (as Les said) it has been empty for more than 2 years.

The only other point worth looking at is a 'changed number' conversion - if the number of dwellings after is different from the number of dwellings before work starts. That would be 5% rated, but it does deserve careful analysis as HMRC do look at this on a floor by floor basis.


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