If a subcontractor works on a reduced VAT rate site ie 5% I understand that they should charge 5% VAT on all building materials and labour.
I have a client who supplies and fits kitchens mainly to new build when the supply is zero rated with the exception of white goods which are standard rated. I understand that all labour on a zero rated site can be zero rated in relation to fitting these goods including the white goods. Is this correct?
On reading Hmrc guidance it looks like, when fitting on a 5% site, labour relating to white goods should be subject to 20% VAT. Is this correct? If so, I assume that the labour can be split (fair basis) between fitting building and non building goods with Vat charged at the appropriate rate?
Many thanks
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Replies (3)
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Reduced VAT Rate
A sub-contractor can use the reduced rate on a project which relates to domestic dwellings. As you state, where some of the labour relates to installation of white goods, or other excluded items, this is charged at 20%.
Thanks Les,
The client currently lists labour on the invoice as first fix and second fix depending on how the site has progressed and does not show labour relating to installing the white goods seperatley. The first fix invoice generally relates to the installation of kitchen units. The second fix invoice is usually heavily weighted towards the white goods. If the total labour element across the job was say £1000 the client would currently split this 50:50 so that the first fix invoice shows £500 labour and the second fix £500 although this would not reflect the 'true' split of labour relating to kitchen fitting and then installing the white goods.
I assume that he needs to show this labour relating to the installation of white goods seprately on the invoice and charge VAT at 20%. Any tips on allocating the labour to reduced rate and full rate services. Is a reasonable estimate sufficient or would HMRC expect to see time sheets?
Is the client OK to show the labour on the invoices 50:50 at each stage or should the labour reflect the goods element of the invoice?. My concern is that HMRC will see the second fix invoices relating mainly to white goods and expect the full amount of the labour on these invoices to be charged at 20% VAT.
Apportionment of labour
I usually base any such calculation on the contractor's own Schedule of Works, and apportion the labour over the reduced rated and standard rated elements. Since this uses a document and calculation which ordinarily produced, HMRC will generally accept a VAT calculation which uses the same data.