Reduced VAT rate ― conversion of property to an alternative residential use

By Tolley
VAT_tax_img

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Reduced VAT rate ― conversion of property to an alternative residential use
  • Which construction services are covered by the reduced rate?
  • Terminology
  • Conversion of premises to different residential use
  • What are qualifying conversions?
  • What services can be supplied at the reduced VAT rate?
  • Garages
  • Building control and planning consent
  • Certificates
  • Grant of a major interest in a converted property

With effect from May 2001, certain renovation and conversion work undertaken in respect of residential accommodation became liable to VAT at the reduced rate. This guidance note provides a comprehensive overview of the VAT treatment of the conversion of a property for a different residential purpose than it was originally used.

HMRC Notice 708 ; VATA 1994, Sch 7A, Part II, Group 6; VCONST06000
Which construction services are covered by the reduced rate?

The following construction services are included within the scope of the reduced VAT rate:

  • conversion of property to an alternative residential use
  • renovation or alteration of an empty residential property (see the Reduced VAT rate ― renovating and altering empty residential property guidance note for more information)

The business supplying the services needs to ensure that they charge the lowest amount of VAT applicable to the supply made. Therefore, the business should check and confirm that none of the construction services provided could be zero-rated rather than reduced-rated.

Businesses also need to be mindful of the fact that it can only apply the reduced VAT rate to applicable construction services. If the work undertaken is liable to VAT at differing VAT rates (ie 0%, 20%, as well as 5%), the business must apportion the value of the services provided and apply the appropriate VAT rate to the work performed. If the business cannot apportion their work between the different VAT rates, none of the work undertaken will be liable to VAT at the reduced rate and VAT must be charged at the standard rate on all of the work undertaken. Please see VATA 1994, Sch 7A, Part II, Group 6, para 1(3).

Terminology

The terminology used in relation to land and property transactions

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