{"id":179,"date":"2015-09-11T06:20:37","date_gmt":"2015-09-11T06:20:37","guid":{"rendered":"http:\/\/renovateme.co.uk\/blog\/?p=179"},"modified":"2018-09-07T19:19:04","modified_gmt":"2018-09-07T19:19:04","slug":"renovations-5-vat-rate","status":"publish","type":"post","link":"https:\/\/renovateme.co.uk\/blog\/renovations-5-vat-rate\/","title":{"rendered":"Renovations and the 5% VAT rate"},"content":{"rendered":"<p>The most common misunderstanding about VAT and renovations is when the 5% rate applies, so I thought that I&#8217;d try to clear up the confusion.<\/p>\n<p>In my previous blog, I explained the basic rule which is:<\/p>\n<ul>\n<li>If you&#8217;re purchasing goods only, the supplier, whether a builder&#8217;s merchant or retailer, has to charge 20% VAT.<\/li>\n<li>If you purchase the goods from a contractor who <u>also installs the goods<\/u>, he can charge 5% for the services and the goods.<\/li>\n<\/ul>\n<p>The reason for this is that under the VAT law, <em> the 5% rate only applies to services supplied in the course of qualifying renovations or restorations AND GOODS SUPPLIED IN CONNECTION WITH THOSE SERVICES.<\/em><\/p>\n<p>So what difference does this make in practice?<\/p>\n<p>Suppose you want to install a new boiler to supplement an existing wooden stove as part of the renovation. You know that you can only get the 5% rate if the boiler is supplied by and fitted by a VAT registered plumber\/contractor.<\/p>\n<p><b>But you know that you can get a better price if you shop round and buy the boiler direct and engage a plumber to install it for you. So how do you calculate whether this works out cheaper overall than the supply and fit option?<\/b><\/p>\n<p><a href=\"\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280.jpg\" data-imagelightbox=\"g\"><img loading=\"lazy\" class=\"alignnone size-medium wp-image-188\" src=\"\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280-300x212.jpg\" alt=\"wood-stove-644481_1280\" width=\"300\" height=\"212\" srcset=\"https:\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280-300x212.jpg 300w, https:\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280-1024x725.jpg 1024w, https:\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280-1200x849.jpg 1200w, https:\/\/renovateme.co.uk\/blog\/wp-content\/uploads\/wood-stove-644481_1280.jpg 1280w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>Unfortunately there&#8217;s no simple formula to work this out, because each case is different and depends on a range of factors, including the size of your discount under Option A and how much mark-up the contractor adds under Option B.<\/p>\n<p>Here&#8217;s an example:<\/p>\n<p><b>Option A<\/b><\/p>\n<p>I buy a boiler with a list price of \u00a31,500 net of VAT and negotiate a 15% discount, so the VAT inclusive cost works out as follows:<\/p>\n<p>\u2022 Discounted net price: \u00a31,275.<br \/>\n\u2022 VAT at 20%: \u00a3255<br \/>\n\u2022 VAT inclusive price: \u00a31,530.<br \/>\n\u2022 The cost of installation by a trader who is not registered for VAT is \u00a3800.<\/p>\n<p><u>Total price: \u00a31,530 + \u00a3800 = \u00a32,330.<\/u><\/p>\n<p><b>Option B<\/b><\/p>\n<p>I engage a VAT registered contractor to supply and install the boiler.<\/p>\n<p>Because he&#8217;s trade, he can get a much higher discount of 25% on the boiler. So the cost to him is discounted net price: \u00a31,500 less 25% discount = \u00a31,125 + VAT @20%: \u00a3225 = \u00a31350.<\/p>\n<p><b><em>Because he&#8217;s registered for VAT, he can claim the 20% VAT of \u00a3225 from HMRC on his VAT return.<\/em><\/b><\/p>\n<p>Assume that I persuade the contractor to give me the same 15% discount that I would have got if I&#8217;d bought direct?<br \/>\n\u2022 The net price would be \u00a31,275.<br \/>\n\u2022 Plus his labour: \u00a3800<br \/>\n\u2022 Total net cost: \u00a31,275 + \u00a3800 = \u00a32,075<br \/>\n\u2022 Plus VAT @ 5% = \u00a3103.75<\/p>\n<p><u>Total price: \u00a31,275 + \u00a3800 + \u00a3103.75 = \u00a32,178.75.<\/u><\/p>\n<p>In this case, it would be cheaper to engage the contractor under Option B:<\/p>\n<p>Option B price: \u00a32,178.75<br \/>\nOption A price: \u00a32,330<\/p>\n<p><u>I&#8217;d save \u00a3151.25 over the price if I bought directly and engaged labour directly.<\/u><\/p>\n<p>Of course, this example only considers one relatively small piece of expenditure and the answer would be quite different if depending on a range of factors, for example, if the contractor charged me list price for the boiler. But there can be significant savings by engaging a single contractor to do the whole renovation at 5% VAT. If you were looking at a total spend in excess of \u00a3150,000, the saving from a supply and install contract could be several \u00a31,000s.<\/p>\n<p>Finally, I&#8217;m often asked if it matters whether you pay 20% rather than 5% if you can claim the VAT back from HMRC. The answer is most definitely YES, it does matter, for a number of reasons which I&#8217;ll discuss in more detail in my next blog.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The most common misunderstanding about VAT and renovations is when the 5% rate applies, so I thought that I&#8217;d try to clear up the confusion.&hellip;<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[172],"tags":[74,89],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v16.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Renovations and the 5% VAT rate<\/title>\n<meta name=\"description\" content=\"Renovating a property, remember supply and installation leads to VAT at 5%, but you have to pay 20% on goods alone.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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