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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi, Sorry if this is a bit long-winded. Currently I own

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Hi, Sorry if this is a bit long-winded.
Currently I own a house which has had in the past a two story extension added (Garage with bedroom above).
I've obtained planning permission to split the main house from the extension and create two separate residential dwellings. The new house would then have a two story extension added.
I've had a quote from a builder showing VAT charged at the standard rate for the work.
Do you think that this is correct?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

The basic rules which govern the VAT rating of labour and materials costs in relation to a new residential property are set out here. VAT Notice 708 here has the detailed rules.

If you look under the heading "What is a new construction?", it gives some example scenarios. As you appear not be planning to demolish everything that is currently on the site, that is probably the reason the builder has given you a quite with VAT included. If you ask the builder why VAT has been added to the quote, you will have a better understanding of his reasoning and will be better placed to determine if he is correct or not in his understanding of the VAT rules in relation to new builds. It's not unknown for them to get it wrong but the whole area is a minefield of odd rules.

My own view is that you will need to demolish the extension that remains.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Thanks for that. VAT Notice 708 is certainly a migraine inducer, as it seem to contradict itself but re-reading the relevant sections I can see where you're coming from.

Regards

Steve

Expert:  TonyTax replied 2 years ago.
VAT is a nightmarish world.

You need to talk to the builder, find out what his thinking is and then seek out some local expert advice. I think the fact that you are planninng to build two properties is what is swaying his thinking and you may need to re-think your plans. There are ways to divide work between zero-rated and standard rated works but you need to be completely sure of your ground to avoid expensive mistakes.
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