The key time where the reduced VAT rate becomes useful for most property investors is when they are converting a property from one use to another. For example, a single dwelling is being converted into a multiple dwelling property (a HMO). The complete information can be found in VAT Notice 708 Buildings and Construction which can be useful to get an understanding of the detail.
The first point to note is that this only applies if you are using a VAT registered contractor otherwise it is irrelevant.
The basic conditions are:
- A qualifying conversion is carried out.
- Provide a Valid Certificate
- The services being provided by the contractor are qualifying services
The key thing to ensure you consider is that you are aware of Condition 3 which details where you can make use of these savings of VAT. The Conditions can be seen below, which includes an extract from H M Revenue and Customs VAT Notice 708 Construction and Buildings Notice.
Condition 3
The qualifying services are as follows:
EXTRACT FROM HMRC VAT NOTICE 708 Construction and Buildings:
Reduced rate services
Other than installing goods that are building materials (see paragraph 13.8 for examples of building materials), you can also reduce rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.
You can also reduce rate works within the immediate site of the premises being converted that are in connection with the:
- means of providing water, power, heat or access
- means of providing drainage or security
- provision of means of waste disposal
All other services are standard-rated. For example, you must standard rate:
- the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
- the erection and dismantling of scaffolding
- the hire of goods
- landscaping
- the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors
Garages
You can reduce rate the:
- conversion of an outbuilding into a garage
- construction of a new detached garage
- construction of a drive serving the garage
This is provided both these conditions are met:
- the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion
- the work is carried out at the same time as the qualifying conversion
But you cannot reduce rate the provision of a hardstanding (ground surfaced with a hard material for parking vehicles on) unless it is also used as an access.
Apportionment
You can only reduce rate those services we have discussed when they’re supplied in the course of a qualifying conversion. If your services cover a wider range of work then you may apportion your charge on a fair and reasonable basis. If you decide not to make an apportionment then none of your work can be reduced-rated.
Remember to check whether you can request your contractor to invoice you with the reduced rate of VAT before you make payment. It can be more difficult when payment has already been made.
If you think you have an eligible conversion and want clarification or want some on advice of what you need to do to utilise the reduced rate of VAT, please do not hesitate to contact us.
October 14th, 2019
