VAT on construction

Ade B

MB Enthusiast
Joined
Nov 26, 2006
Messages
1,831
Location
South London
Car
2006 Accord Tourer iCDTI EX
One for the builders/developers out there - dropped into my inbox earlier:

A brief reminder, by default VAT is levied at the Standard Rate on all construction works apart from the following-
· New build residential units - presuming full demolition of prior structures, bar any mandatory facade retention.
· Alteration works, with Listed Building Consent, to Listed Buildings. (being in a Conservation Area is not sufficient)
· Conversion of non-residential buildings into residential use.
· Altering the number of dwellings in a building; such as increasing / decreasing the number of flats, houses into flats etc.
· Renovation of dwellings uninhabited for more than 2 years.
· Certain new builds and extensions to Charitable buildings.
· Commercial developments.
Professional fees always attract VAT at the Standard Rate and usually result in an irrecoverable VAT burden.
VAT relief is not automatic and needs to be proven to the Contractor along with a suitable apportionment showing precisely where VAT relief may be applied. As it is the sole responsibility – and liability – of the Contractor to account for VAT correctly; they must charge VAT in full if no apportionment is provided (or indeed if they are not comfortable undertaking an apportionment themselves).

Obviously proper accountant's advice required etc. however thought it may be useful info for someone.

Ade
 
Last edited:

Piff

MB Enthusiast
Joined
Feb 24, 2005
Messages
2,264
Location
Suffolk
Car
Mitsubishi L200 Barbarian, BMW X3
"VAT relief is not automatic and needs to be proven to the Contractor along with a suitable apportionment showing precisely where VAT relief may be applied. As it is the sole responsibility – and liability – of the Contractor to account for VAT correctly; they must charge VAT in full if no apportionment is provided (or indeed if they are not comfortable undertaking an apportionment themselves). "

Love this - we are required to be experts and at VAT inspection time they go through our books with the "fine tooth comb" and penalise us for incorrrect interpretaion of their rules.

Seperate issue to VAT, I have been "fined" £100 twice in the last 18 months for failing to tell them that I haven't had any subcontractors in that month and therefore haven't deducted any tax from these subcontractors I haven't had and haven't notified them that I don't owe them any money.
I've appealed both times successfully, but the point is that they should make it easier to apply their rules and, if no tax is due, it is hard to understand why they issue a penalty of £100 for failing to tell them that no tax is due.
 
Last edited:

AMG-Al

Active Member
Joined
Aug 28, 2009
Messages
259
Location
Ayrshire, Scotland
Car
CLK55AMG (W208)
Interesting Piff, I also have been penalised for no CIS returns since the new tax year began, when none were due and I had the "give me peace for 6 months" tab checked on the online return.



Wonder if it's a problem of their making........
 

SPX

MB Club Veteran
SUPPORTER
Joined
Aug 29, 2010
Messages
17,207
Location
Yorkshire
Car
That one
I used to have the same problem with them.

I told them I won't be having anymore subbies working for me so they stopped the requests for monthly returns. For one whole month.

It got to the point where I had to ring them every month reminding them that I won't be having anyone sub-contracting from me.
 

jepho

Active Member
Joined
Apr 14, 2011
Messages
210
Car
W203 C220 CDI Coupe
Interesting Piff, I also have been penalised for no CIS returns since the new tax year began, when none were due and I had the "give me peace for 6 months" tab checked on the online return.



Wonder if it's a problem of their making........

This is not quite the same thing but it is relevant. I have a relative working in one of the industries requiring CIS accounting. (as a sub-contractor) Instead of him having the CIS deductions shown on every invoice, I discussed it with HMRC and he is now on their gross accounting scheme. We deal with it (from an operatives viewpoint) once a year. It may be worth encouraging all of your contractors to seek the same, if you don't have too many on your books, and that may free you from the responsibility of CIS accounting. :)
 

ShinyF1

MB Enthusiast
Joined
Aug 27, 2006
Messages
1,117
Location
SW London
Car
2012 Audi S5 Cab, 2000 E320 CDI Estate [now gone] , 2010 Mini Cooper Convertible
I sympathise Piff.

Just reading it is getting my blood boiling - I've worked as a contractor on 'complicated' VAT building projects for the last 25 years. And guess who give you the silent treatment when you put proposals to them about VAT regimes.....

.....good old HMCS.

I think I finally understand it, but they set out the rules so it is your responsibility as a contractor to charge the correct level of VAT, and that seems to be their stock answer if you're lucky enough to get one when you approach them for advice.

The rub is that in the event that HMCS audit you [highly likely if you are turning over £50m on refurbishment work and charging an average of substantially less then 10% VAT on it] the contractor is liable to pay what HMCS consider in hindsight to be the correct level that should have been charged if they think you got it wrong.

In the context of the market I work in, this means you try to pass the charge on to the client [if you find out early enough and before you agree a Final Account], but the client is a multi-millionaire with tax lawyers and accountants who think they can tell you what they should be paying. Quite a risk if your project is a £15m house refurbishment, and potentially far in excess of any profit you stand to make on a project of that size.

Every client [owner or developer] wants to keep their costs down and they believe 'easy' wins are minimal VAT costs. I've almost lost count of projects in London which combine:

Converting several flats back into one house - tick
in a listed building - tick
with alterations - tick
and repairs - no tick [or are they alterations??? - maybe tick]
with an extensive new build extension - tick
and very expensive fitting out -tick [or is there plaster behind that cabinetry - no tick]
etc etc

There, rant off my chest. Feel better now

Sean
 
Last edited:

AMG-Al

Active Member
Joined
Aug 28, 2009
Messages
259
Location
Ayrshire, Scotland
Car
CLK55AMG (W208)
This is not quite the same thing but it is relevant. I have a relative working in one of the industries requiring CIS accounting. (as a sub-contractor) Instead of him having the CIS deductions shown on every invoice, I discussed it with HMRC and he is now on their gross accounting scheme. We deal with it (from an operatives viewpoint) once a year. It may be worth encouraging all of your contractors to seek the same, if you don't have too many on your books, and that may free you from the responsibility of CIS accounting. :)

No, my point is we have made no deductions from any sub-contractors under CIS and are unlikely to do so in the near future. The nil return button was clicked on our online return so no returns due and no penalties expected.

However the letters still arrive. Both appealed already btw.

Gross status is ideal, although some guys cannot/will not/do not want to go gross for their own personal reasons.
 
OP
OP
Ade B

Ade B

MB Enthusiast
Joined
Nov 26, 2006
Messages
1,831
Location
South London
Car
2006 Accord Tourer iCDTI EX
I sympathise Piff.

Just reading it is getting my blood boiling - I've worked as a contractor on 'complicated' VAT building projects for the last 25 years. And guess who give you the silent treatment when you put proposals to them about VAT regimes.....

.....good old HMCS.

I think I finally understand it, but they set out the rules so it is your responsibility as a contractor to charge the correct level of VAT, and that seems to be their stock answer if you're lucky enough to get one when you approach them for advice.

The rub is that in the event that HMCS audit you [highly likely if you are turning over £50m on refurbishment work and charging an average of substantially less then 10% VAT on it] the contractor is liable to pay what HMCS consider in hindsight to be the correct level that should have been charged if they think you got it wrong.

In the context of the market I work in, this means you try to pass the charge on to the client [if you find out early enough and before you agree a Final Account], but the client is a multi-millionaire with tax lawyers and accountants who think they can tell you what they should be paying. Quite a risk if your project is a £15m house refurbishment, and potentially far in excess of any profit you stand to make on a project of that size.

Every client [owner or developer] wants to keep their costs down and they believe 'easy' wins are minimal VAT costs. I've almost lost count of projects in London which combine:

Converting several flats back into one house - tick
in a listed building - tick
with alterations - tick
and repairs - no tick [or are they alterations??? - maybe tick]
with an extensive new build extension - tick
and very expensive fitting out -tick [or is there plaster behind that cabinetry - no tick]
etc etc

There, rant off my chest. Feel better now

Sean

Interesting, I can see the conundrum - we've a couple of projects with conversions and one with listed status. The rules for listed buildings are not quite straightforward and we asked our client to get their accountant to put together an assessment covering the VAT liabilities on various aspects before the works started. This letter was accepted by the contractor as a basis for their invoices. I can see how at the time this solves a problem but doesn't protect the contractor from a differing VAT assessment down the line.

The client of course tries to lump everything possible into the zero rate category which I guess is where the problems start.

Anyone got a proven procedure for dealing with this?

Ade
 

ShinyF1

MB Enthusiast
Joined
Aug 27, 2006
Messages
1,117
Location
SW London
Car
2012 Audi S5 Cab, 2000 E320 CDI Estate [now gone] , 2010 Mini Cooper Convertible
It's much simpler down the food chain as we get all suppliers and subcontractors to charge VAT at the full rate - puts enormous pressure on cashflow though. Monthly VAT returns help as a rebate appears every month.
 

Piff

MB Enthusiast
Joined
Feb 24, 2005
Messages
2,264
Location
Suffolk
Car
Mitsubishi L200 Barbarian, BMW X3
Interesting, I can see the conundrum - we've a couple of projects with conversions and one with listed status. The rules for listed buildings are not quite straightforward and we asked our client to get their accountant to put together an assessment covering the VAT liabilities on various aspects before the works started. This letter was accepted by the contractor as a basis for their invoices. I can see how at the time this solves a problem but doesn't protect the contractor from a differing VAT assessment down the line.

The client of course tries to lump everything possible into the zero rate category which I guess is where the problems start.

Anyone got a proven procedure for dealing with this?

Ade
I don't think there is a procedure.
We are required to interpret the rules "correctly" as there is little or no advice other than their published documents which can easily be misinterpreted.
The VAT inspection can come at any time. When they find an error in the current year - which they will as it is their job, they will then go back through the preceeding 5 years.
It's a bit late to go back to the client and say "you know the final account we agreed 4 years ago - well I got the VAT wrong - could you let me have some more ££'s"
 

Benzowner

MB Enthusiast
SUPPORTER
Joined
Jun 21, 2004
Messages
2,920
Location
Bristol
Car
Qashqai Acenta Premium 1.6Diesel
I don't think there is a procedure.
We are required to interpret the rules "correctly" as there is little or no advice other than their published documents which can easily be misinterpreted.
The VAT inspection can come at any time. When they find an error in the current year - which they will as it is their job, they will then go back through the preceeding 5 years.
It's a bit late to go back to the client and say "you know the final account we agreed 4 years ago - well I got the VAT wrong - could you let me have some more ££'s"

And often what the VAT inspectors don't or won't realise is if you are successful in going back the 4 or 5 years and getting the VAT off the client, he will only claim against the VAT office so it ends up the VAT office pay the client, he pays you and you give it back to the VAT office. I suppose it keeps them employed:wallbash:
 

nick.ged

Active Member
Joined
Sep 13, 2009
Messages
704
Location
midlands
Car
mutty the nail; wide body amg 124 coupe
And often what the VAT inspectors don't or won't realise is if you are successful in going back the 4 or 5 years and getting the VAT off the client, he will only claim against the VAT office so it ends up the VAT office pay the client, he pays you and you give it back to the VAT office. I suppose it keeps them employed:wallbash:


and there endeth the first lesson.
 

Users who are viewing this thread

Top Bottom