{"id":735,"date":"2017-11-07T17:05:00","date_gmt":"2017-11-07T17:05:00","guid":{"rendered":"https:\/\/renovateme.co.uk\/blog\/?p=735"},"modified":"2018-09-07T19:15:04","modified_gmt":"2018-09-07T19:15:04","slug":"reduced-vat-rate","status":"publish","type":"post","link":"https:\/\/renovateme.co.uk\/blog\/reduced-vat-rate\/","title":{"rendered":"How do I get 5% reduced VAT rate for my conversion?"},"content":{"rendered":"

5% reduced VAT rate<\/h3>\n

I recently received an email from a developer whose contractor was refusing to charge the 5% reduced VAT rate unless the developer had a letter from HMRC confirming that the 5% rate was correct. The developer asked, quite reasonably, how he could get such a letter.<\/p>\n

Unfortunately, that’s not how it works, because HMRC do not routinely issue letters to confirm the VAT liability of construction work.\u00a0 As I’ll explain below,\u00a0 every VAT registered business has to assess its’ own VAT liabilities and this means that they have to decide the correct rate of VAT.\u00a0<\/span><\/p>\n

VAT: the\u00a0original self-assessed tax<\/b><\/h3>\n

VAT is a self-assessed tax which means that VAT registered businesses have to charge the\u00a0correct rate of VAT to their customers and pay the correct amount to HMRC.\u00a0 Unlike income tax, there is no routine review of VAT returns.\u00a0\u00a0 The businesses collect the tax and pay the money to HMRC every three months.\u00a0 And this self-assessment has been in place since VAT was introduced in 1973.<\/p>\n

It means that\u00a0the business has to decide whether their sales of goods and\/or services are liable to 20% VAT, or qualify for the 5% or zero-rate, or even exemption from VAT.\u00a0 It’s their liability to get it right.<\/i><\/b><\/p>\n

So what does this have to do with getting the 5% rate for your conversion or renovation?<\/b><\/h3>\n

It means that contractors have to decide whether their work qualifies for either the zero-rate or the 5% rates, as explained in VAT Notice 708: Buildings and construction<\/a>.\u00a0 And this is where the problems start.<\/p>\n

Most experienced contractors understand the basic principles; new build is usually zero-rated, some conversions and refurbishments are at 5% and everything else is at 20%.\u00a0 If you’re unsure, you probably want to charge 20% so that you don’t owe HMRC any money, even if you think that the 5% rate might apply.<\/p>\n

This\u00a0 isn’t unusual: a lot of businesses pay TOO MUCH VAT for the simple reason that they’d rather pay too much now than end up with an assessment later for under-declared VAT.\u00a0<\/strong> <\/em><\/p>\n

HMRC often talk about business who don’t pay enough VAT – but they rarely acknowledge the many thousands of businesses who routinely overpay because they are frightened of getting it wrong.<\/p>\n

Let’s look at some figures<\/strong><\/h3>\n

Take our contractor and suppose he has a contract that he has costed at \u00a35,000 net of VAT.\u00a0 The difference between VAT at 5% and VAT at 20% is quite significant:<\/p>\n