My Supplier Wants To Charge 20% Yet You Indicated 5%. Who And Which Is Correct ? And Why ?

My Supplier Wants To Charge 20% Yet You Indicated 5%. Who And Which Is Correct ? And Why ?

A JONES • Jun 25, 2017

Mr. Owen of Aberystwyth, asked me this week about the reasoning behind 5% and not 20% on supply and fit, as his supplier wishes to charge him 20%, on his reinstatement of a dwelling that has been unoccupied for 10 years or more, prior to the commencement of his work on the building, for an oak porch, which they are purchasing on a supply and fit basis.

Mr. Owen qualifies for zero rating vat as he is reinstating a dwelling left unoccupied for over 10 years under HMRC vat431c. ( https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-and-notes-fo... ).

This will be achieved in a combination of two ways. The first would be reduced rate at source (which is the question from Mr. Owen) - any vat registered business that comes to do any work for you on a labour only basis or on a supply and fit basis, you should be charged the reduced rate of vat, currently 5% (on 25th June 2016).

This is a common area where people go wrong and I can understand and see how and why. How can the oak porch manufacturer be aware that Mr. Owen qualifies for 5% vat, when, as a rule, everyone pays 20% Vat, therefore HMRC make it clear, that it is the responsibility of the house owner or bill payer to pay the correct rate of vat. On the other hand, I can see how difficult it can be for a member of the general public, who is undertaking a project of this criteria for the first time and for most people, this is the only time that they will ever do a building project of this magnitude, to then expect them to have knowledge of the vat rules. There is a lack of simplified information and general understanding available to people. Some people may feel that this is deliberate, and also there are a lot of unqualified people or people with a small amount of understanding commenting on this, especially online and in forums, but just to be clear, should you pay the incorrect rate of vat in error, in this case 20% instead of 5%, you will not receive any refund from HMRC, not 5%, not the 20% or the difference between these 2 figures, irrespective of the fact that HMRC has received your Vat money from the contractor.

I apologise that this is quite long winded but let’s be clear, where a dwelling is unoccupied for 10 years prior to the commencement of the work and contractor visits the site, its 5% across the board. I often see invoices with materials at 20% and labour at 5% but this is incorrect, it should be 5%. You will always pay 20% at your builders’ merchants and DIY store and in turn, the vat on these invoices can be reclaimed from HMRC at the end of the project along with the 5% invoices, as long as you have the invoices in the correct format.

I hope this is clear enough and helps, but if you need clarification or help on a specific issue, please get in touch or ask a question below as I’m always happy to help.

I have been asked for evidence on the above. If you click on the link in the text of the blog, you will see an initial 9 pages for submitting a vat reclaim. Scroll through these and then there are 16 pages of tips and advice from HMRC regarding reclaiming vat on a conversion/reinstatement using vat431c. I draw your attention to -

  • Page 1, and in a box in the centre of this first page, it confirms that a property empty for 10 years does meet the qualifying criteria for this scheme.
  • Page 2, where it states, Types of conversions eligible for the scheme, If you look at the 2nd point under this heading
  • Page 4, where it states, Part B - Are you eligible to reclaim
  • Page 5, to a lesser degree, where it states , Have you got evidence that the building has been empty for 10 years of more before the work started
  • Page 16, where it states, Services you can claim for, this carries some more supporting evidence

The 16 pages on the link I referred to are a compacted version of vat notice 708, this can be found at https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction

I hope this helps a little more.


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