If work is carried out to an existing building VAT is usually chargeable at the standard rate (20%). However, some taxpayers may be eligible to be charged at the reduced rate (5%) if renovating or altering an eligible dwelling that has not been lived in during the 2 years immediately before the work starts.
Evidence may be required to show that the building has not been lived in during the 2 years immediately before work starts. Proof can be obtained from:
- Electoral Roll
- Council Tax records
- Utilities companies
- Empty Property Officers in local authorities
- Any other source that can be considered reliable
The following occupation can be ignored:
- Illegal occupation by squatters
- Occupation by ‘guardians’
- Non-residential use, such as storage for a business
Each purchase should be considered on its own merits before the reduced rating can be applied.
This lesser-known rule can provide significant cashflow savings and save a taxpayer up to 15% on the cost of a renovation.
If VAT has been charged incorrectly it can only be recovered from the supplier which may be difficult to achieve after the event. This will be extremely important if VAT cannot be recovered on the development and the overcharged 15% becomes a cost component.
VAT can be a complex area. Everyone’s situation is different and getting advice that is tailored to your unique situation can ensure that your affairs are as efficient as possible.