VAT Treatment for Construction, Renovation, and Conversion Projects
While construction work typically defaults to the standard VAT rate, certain property construction, renovation, or conversion projects may qualify for preferential VAT treatment. This article focuses on those specific scenarios.
It’s important to note that a ‘building’ can refer to an entire structure or just a part of it, though services provided by architects, surveyors, and similar professionals are always standard-rated.
Under the Value Added Tax Act 1994 (VATA 1994), a ‘conversion’ involves incorporating parts of an existing building into the new structure. In contrast, ‘construction’ entails creating a new building without using any above-foundation part of a prior structure. However, exceptions exist for retaining party walls (as per Notice 708, section 3.2.3) or a single/corner façade (as per s3.2.4), which would not generally affect the classification as construction.
VAT on Residential Conversions
For a ‘qualifying conversion’, a reduced VAT rate can apply to eligible supplies, provided they consist of ‘qualifying services’ as outlined in Schedule 7A, Group 6. According to Note 11, qualifying services generally cover work on the building’s structure and specific site services related to utilities such as water, power, and heat. Additionally, ‘building materials’ supplied by the person providing qualifying services can also receive the reduced rate, if incorporated into the building.
A conversion qualifies if it involves:
- Changing the number of single household dwellings,
- Converting a building into a house in multiple occupation, or
- A special residential conversion.
