Construction services taxed at VAT zero or 5% rate

Whilst most businesses in the UK charge VAT at the standard rate of 20%, there are a number of different VAT rates and exemptions that construction businesses should be aware of. In the UK, there are three separate VAT rates; the standard rate at 20%, reduced rate at 5% and the zero rate at 0%.

HMRC has published an updated version of their guidance titled VAT rates on different goods and services. The guidance provides a list of goods and services showing which rates of VAT apply and which items are exempt or outside the scope of VAT.

The guidance lists the following construction services which can be taxed at the zero or 5% rate.

Taxed at the zero rate:

• Substantial reconstructions to protected buildings that are buildings used as a dwelling, for a relevant residential purpose or for a relevant charitable purpose     
• The installation of a bathroom or lavatory, constructing ramps and widening doorways or passageways for disabled people in their own home   
• Construction and first freehold or long leasehold sale of a new building for a relevant charitable purpose  
• Construction and first freehold or long leasehold sale of a new building for relevant residential purposes
• Construction and first freehold or long leasehold sale of new domestic buildings  
• First freehold or long leasehold sale of a commercial building converted into a dwelling or dwellings
• First freehold or long leasehold sale of buildings converted for relevant residential purposes         
• First freehold or long leasehold sale of buildings converted for relevant charitable purposes         

Taxed at the reduced rate of 5%:

• Converting existing premises by increasing the number of dwellings within the building 
• Renovating a dwelling that has been empty for at least 2 years

If you require assistance with VAT returns for your construction business, we have an experienced team of people you will want to talk to!