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Submit plansI’m renovating a property which was empty for 15 years and I have a couple specific questions about the VAT reclaim process.
Firstly, my VAT registered builder is purchasing some materials from his suppliers and, at the end of each month, invoices me for materials and labour with VAT on the total of 5%. My concern is this 5% for materials is on the gross material cost, including VAT at 20% he was charged. I know I can claim the 5% back at the end for materials and labour but it seems to me I have actually paid effectively 20% VAT for the materials onto which another 5% is added. On supplies for the build, which I buy myself, I am paying the 20% to the supplier but in that case, can I claim back the full 20%?
Secondly, the plans include a full renovation and an extension. Is the extension covered by this scheme or does that need to be invoiced at 20%? In notes on VAT notice 708 for reduced rate services, it states “you can reduce rate of any works of repair, maintenance, or improvement (such as construction of an extension or installation of double glazing).” Thanks in advance for your advice.
Hi Tim,
As you are carrying out a renovation of a residential property that has not been lived in for over 10+ years, you are eligible to reclaim the vat charged on materials and labour as HMRC consider the works to be a conversion. Your builders are correct in charging you 5% VAT on their supplies of materials and labour.
Without having contact with your builder and checking your invoices it seems to be that your builder is charging you cost with an uplift of 20% (their profit) and then charging you the 5% VAT on this charge i.e. the materials, labour and their profit.
The builder will be buying materials on their account (normally) which includes their discount so you may still be paying less for the materials than if you purchased the materials yourselves. The alternative would be to supply the builder with materials that you purchase. Of course, by doing this you will be paying the standard VAT rate of 20% so not as good for your cash flow as paying your builder at 5%.
Yes, you are correct in that you can claim the full 20% VAT charged on materials you are purchasing directly from suppliers. Any works carried out to the property, including the extension, are subject to the 5% VAT rate. Just ensure that all the works are carried out before the Completion Certificate is issued as you cannot claim for any materials or labour that is invoiced after the CC Date.
Kathy Tisdale, Built It’s VAT reclaims experts