Residential property was purchased in Feb 20, it has been empty from April 2018. The new owner (who still isnt living in the property) had builders start work on a renovation in March 2020 (<2 years after it was empty). The total refurb costs are £200k and the cost of the work pre April 2020 is around £20k which of course will be standard rated. However, how about the work carried out after April 2020, I have a bad feeling that becuase the work started pre April 2020 this may mean the whole £200k is subject to VAT at 20%?
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Can't recall the detail but have a look at VAT Notice 708.
The legislation and guidance seems to indicate that the contractor can split the work between standard and reduced rates. The earlier work is not eligible for the reduced rate, but the later work is eligible.
Hi Les
I'd tend to disagree, or at least to say that it is far from clear.
The legislation mentions ".....not been lived in during the period of 2 years ending with the commencement of the relevant works" The relevant works are described as "....the works that constitute the services supplied;"
HMRC guidance, addressed to the contractor, mentions ".....the 2 years immediately before your work starts". I've always taken that to mean that if, say, there is only one contractor, and his work on the building starts before the two year period is up, he can't utilise the 5% VAT rate. A new contractor coming after the 2 year period has expired can use 5% as HIS work hasn't started before the date.
All a bit grey..
For completeness, I agree that the contractor can use the 5% VAT rate on the works carried out prior to the 2 year period expiring. I can't there's much scope for splitting the work, unless with two separate contracts.
Is it contract or service?
Can a contract not cover myriad different services?
I'm just considering at how HMRC might interpret the phrase "when your work starts". If it is a contract "to renovate house", my feeling is that HMRC would take it as starting when it starts, and covering all the work. I might be wrong; in fact I'd love to be wrong as it would make life a whole lot easier for some of the jobs I advise on.
https://www.legislation.gov.uk/ukpga/1994/23/schedule/7A
Group 7 — [F38RESIDENTIAL RENOVATIONS AND ALTERATIONS]
ITEM NO.
1.The supply, in the course of the renovation or alteration of [F39qualifying residential premises], of qualifying services related to the renovation or alteration.
This suggests a supply may be a part of the whole renovation or alteration- the renovation or alteration appears singular,(use of "the"), the supplies within that "the"it appears may be multiple.
It may be that as the renovation needs to be a singular event post two years that the first works needed to stop, an interval created, and then fresh works commenced after the two years had elapsed, in effect after April 2020.
Must admit after reading down 7 I got myself lost, but I do have some reservations that the works qualify, I think the client may have anticipated the gun.
Thank you all, much appreciated.