Construction industry sub-contractors.

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When can sub-contractors apply the zero or reduced or standard rates?

  • Sub-contractors involved in zero-rated or reduced rated projects in relation to dwellings can follow the VAT liability of the project.
  • Sub-contractors involved in other zero-rated or reduced-rated supplies in relation to RRP or RCP projects must always standard rate their services.

Sch 8, Group 5, Note 12 & Sch 7A, Group 6, Note 8 explain that the zero and reduced rates only apply to the ‘final’ supply to the client. Supplies of sub-contractors are excluded and must therefore be standard rated.

Some complications to be aware of:

  • If supplies in relation to dwellings require apportionment between zero or reduced rate and standard rate services, sub-contractors must also apportion. Usually the main contractor will advise the sub-contractor of this.
  • With effect from 1 October 2019, Reverse Charge rules will apply. Sub-contractors will no longer charge VAT to the main contractor.
  • HMRC Notice 708, para 15.8 still states that, “if the client gives a VAT (zero rating or reduced rating) certificate, then the building will be built under Note 4 and the sub-contractors’ supplies will be standard rated.” This is still wrong! A dwelling is a dwelling; in which case a sub-contractor can zero rate (or reduced rate) his services. (See the FTT case in Summit Electrical Installations Ltd.)

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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