The construction of a property can be expensive. Even more so when VAT is added to the price at the standard rate of 20%.

Are you in the construction industry and confused about zero rated VAT for construction services and materials? You are not alone, in this blog article, we will shed the light on when it applies and the conditions that must be met for it to apply. This short guide should help get a general understanding of the when Zero rated VAT can be applied. However, you are always advised to speak to your accountant or tax advisor when uncertain about what to do so you aren’t pricing your services higher and losing business by charging VAT when you shouldn’t.

As a general rule, building work is charged at the standard rate of VAT, which currently stands at 20%. However, sometimes, building services and materials can be supplied at Zero or reduced rate of VAT (5%).

Zero rated VAT on construction services

Generally, as a builder or contractor, you can charge VAT at 0% on your construction services for a new build. The services which can be Zero rated VAT exclude services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

The new build must be:

• A building designed as a dwelling or number of dwellings, or
• A building is intended for use solely for a residential purpose, or
• The building is intended for use solely for a charitable purpose, or
• Any civil engineering work necessary for the development of a permanent park for residential caravans

Where the construction is for residential purpose or charitable purpose, the user (i.e. your customer) must provide you with a certificate and your services must be provided directly to the user.  Therefore, as a contractor, you must hold a valid certificate to zero-rate your supplies for construction for use for a residential or charitable purpose when your services are being supplied directly to the user.

As an example, if you were hired by a construction company as a bricklayer  and your services were being supplied to that construction company (i.e. you are a subcontractor), your services will not qualify for the zero rated VAT for the new build as they are not being supplied to the user.

What about construction materials

When a building company or contractor is supplying building materials with the services which would qualify for a Zero-rated VAT, the materials would also qualify for the zero-rated VAT instead of the normal standard rated VAT if they are being supplied to the end user (i.e. the customer). The materials must be are incorporated into the building and not not specifically excluded from the zero-rating (e.g. carpet, white goods etc.).

What about mixed use?

If you are working on a building which will be for mixed use, for example a shop with a flat on the top floor, then only the work on the flat will be zero rated. You will have to separate your standard and zero-rated VAT for the mixed use project.

An unexpected VAT bill could be a significant financial burden and it is always advisable to take VAT advice before construction work commences to see whether services and materials can be zero-rating for the project. 

We have a wealth of experience with dealing with construction projects and would be happy to discuss your development.

If you would like more information or you would like to discuss how we can help you please get in touch with us.

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