Firstly, to start with a common misconception, the 5% VAT rule does not mean that you can reclaim 15% VAT. Let’s start at the beginning and explain where the 5% VAT rate comes into play.
The 5% or reduced VAT rate can be utilised in two situations:
- The conversion of premises to a different residential use
- The renovation or alteration of an empty residential property
This article does not cover the full details of the eligibility criteria, but let us just cover the practical use of these rules. The eligibility criteria are covered in section 7 and 8 of VAT Notice 708 Buildings and Construction.
If you fall within the criteria then you need to ask (before making a payment) your builders and other contractors who are VAT registered, to invoice you using the reduced rate of VAT i.e. 5% VAT rate rather than 20%. They will or may ask you the customer or client to provide a VAT Certificate.
There is no specific version available, however, in VAT Notice 708 there are some examples in paragraph Section 18. This will be created by you and then provided to your contractors.
They will invoice you and charge you 5% VAT rather than 20%. You will pay their bill and this will have reduced your refurbishment costs by 15%.
There is no ability to claim the 15% back. However, if you have not finished a project then ensure any final invoices are corrected.
If you have recently finished a project where the reduced rate could have been applied you could request a credit note and for the contractor to re-invoice you with the new VAT Rate. They would then need to refund you 15%. I would note this may not always be practical.
July 4th, 2019