VATWatch - January 2025
Construction and remedial works, including the replacing of cladding, are normally charged at the standard rate of VAT. Construction services will only be charged at the zero rate when applied to a qualifying building. The reduced rate is charged when qualifying services are supplied during the course of a qualifying conversion, or, for certain renovations to empty properties.Â
Once a building is no longer in the course of construction or conversion, any works will be subject to VAT at the standard rate. Such works include improvements, repairs and maintenance.
However, if further works are considered snagging, which is defined as remedial works to correct faulty workmanship or replace faulty materials, VAT relief may be available at the appropriate rate. Normally such works are carried out by the original developer under the terms of the original contract and for HMRC to consider the remedial work as snagging, the work must be undertaken as a part of the original supply of construction services and meet certain conditions.
The conditions are:Â
- there must be a fault to the original construction of a qualifying building that was constructed at the zero rate or reduced rate of VAT
- there is an obligation to correct the fault under the original contract
- a person with ‘person constructing status’ must undertake the remedial work to satisfy the link to the original construction
- there is no new or additional supply or charge made for the remediation by the original developer or the original contractor
If a property is considered as complete for VAT purposes, any future work would normally be considered as repair or maintenance of the existing building. This means it would normally be charged at the standard rate of VAT.
VAT on cladding remediation work
On December 17th HMRC published a brief to clarify its policy on the deduction of VAT incurred on cladding remediation works which are carried out on existing residential buildings. This brief is of interest to developers, representative bodies of the building industry and housing associations.
As a rule, developers who carry out cladding remediation works to residential buildings incur VAT on the goods and services purchased during the course of such building work, and as the remediation works are carried out following completion of the construction, the amendment is treated as ‘snagging’. This would then be subject to either the zero rate of VAT or the reduced rate of VAT. Should the remediation works not form part of the initial building construction they are subject to VAT at the standard rate.
However, following feedback from the building industry HMRC have sort to further clarify this policy.
ICAEW VAT Quiz
The ICAEW are launching a project aimed at raising public awareness of VAT and how it works.
As part of this, they have set a quiz so you can test your knowledge of the VAT rates on certain products!
Thank you for taking the time to read this VATwatch round-up.
