A small construction client is building a new head office for its own use. The building is going to cost about £300k including labour and material. I hear there is self-supply implications on use of own labour. Could someone point me the right direction?
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You are deemed to be making a supply to yourself (known as a self-supply) if you use your own or your employeesʼ labour (where the open market value of that labour is £100,000 or more) to:
•construct a building
•extend, alter or construct an annexe to a building such that the works increase the floor area by 10% or more
•construct any civil engineering work
You do not account for a self-supply charge if the work would have been zero-rated.
The self-supply rule basically calculates output tax on the open market value of the construction services and so this output tax has to be accounted for by the business on the VAT return.
By the same token, this output tax forms input tax which the business can recover in the normal way so, if it uses the building to make taxable supplies in any way, then that proportion of input tax can be recovered.
The self supply rules effectively puts the trader in the same position as if they had engaged the registered contractor.
Hope this helps