Orange juice is zero rated. Lemon juice is zero rated. Mix them, and the product is standard rated.
Category Archives: VAT Basics
VAT – Residential Property Triggerpoints
What to look out for
VAT and property transactions are uneasy bedfellows at the best of times. Getting the tax wrong, or failing to consider it at all can result in a loss of income of 20% on a project, or forgoing all input tax incurred on a development. Even a simple matter of timing can affect a transaction to a seller’s detriment. Here I take a brief look at issues that can impact residential property transactions. It is important to recognise when VAT may affect a project so I hope that some of these triggerpoints may prove useful.
General points
The following are very general points on residential properties. No two cases are the same, so we strongly recommend that specific advice is obtained.
Refurbishing “old” residential properties
Broadly speaking, the VAT incurred on such work is not reclaimable as the end use of the property will be exempt (either sale or rent). There is no way round this as it is not possible to opt to tax residential dwellings. It may be possible to use the partial exemption de minimis limits if there are any other business activities in the same VAT registration. If this is the only activity of a business, it will not even be permitted to register for VAT. There are special rules if the number of dwellings change as a result of the work (see below).
New residential builds
The first sale (or the grant of a long lease 21 years plus) of a newly constructed dwelling by “the person constructing” is zero rated. This means that any VAT incurred on the construction is recoverable. Care should be taken if the new dwelling is let on a short term basis rather than/before being sold as this will materially affect input tax recovery. Advice should always be taken before such a decision is made as there is planning available to avoid such an outcome. VAT incurred on professional and legal costs of the development may also be recovered such as; architects, solicitors, advisers, agents etc. VAT registration is necessary in these cases and our advice is to VAT register at the earliest stage possible.
The construction of new dwellings is zero rated, along with any building materials supplied by the contractor carrying out the work. The zero rating also extends to sub-contractors. It is not necessary for a certificate to be provided in order to zero rate such building works.
Conversions
There are special rules for refurbishments which create a different number of dwellings (eg; dividing up a single house into flats, or changing the total number of flats in a block, or making one dwelling by amalgamating flats). Generally, it is possible for contractors to invoice for their building work at the reduced rate of 5%. This rate may also apply to conversions. A conversion is defined as work undertaken on a non-residential property, such as a barn, office or church, into one or more self-contained dwellings. Once converted the sale of the residential property will be zero rated and all of the input tax incurred on associated costs is recoverable (similar to a new build).
Renovation of empty residential premises
Reduced rating at 5% is also available for the renovation or alteration of empty residential premises. Such a premises is one that has not been lived in during the two years immediately before the work starts. HMRC will insist on documentary evidence that the property has been empty for that time.
Purchase of a commercial property intended for conversion
If it is intended to convert a commercial property into residential use and the vendor indicates that (s)he will charge VAT (as a result of the option to tax having been exercised) it is possible for the purchaser to disapply the option to tax by the issue of a certain document; form VAT 1614D. This means that the sale will become exempt. Advice should always be sought on this issue by parties on each side of the transaction as it very often creates difficulties and significant VAT and other costs (mainly for the vendor).
Mixed developments
If what is being constructed is a building that is only in part a zero-rated dwelling, a contractor can only zero-rate its work for the qualifying parts. For example, if a building containing a shop with a flat above is constructed, only the construction of the flat can be zero-rated. An apportionment must be made for common areas such as foundations and roof etc. The sale of the residential element when complete is zero rated and the sale of the commercial part will be standard rated if under three years since completion. If the commercial part is over three years old at the date of sale, or is rented rather than sold, the supply will be exempt with the option to tax available – details here. If an exempt supply is made, the recovery of input tax incurred on the development will be compromised and it is important that this recognised and planning put in place to avoid this outcome.
DIY building projects
There is a specific scheme for DIY Housebuilders to recover input tax incurred on the construction of a dwelling for the constructor to live in personally. Details here https://www.marcusward.co/?s=diy
Sale of an incomplete residential development
There are two possible routes to relief if a project is sold before dwellings have been completed (either new build or conversion). This can often be a complex area, however, there is some zero rating relief which may apply, and also it may be possible to apply TOGC (Transfer Of a Going Concern) treatment to the sale. In both cases, it is likely that input tax previously claimed by the developer should not be jeopardised.
Overview
There are VAT complications for the following types of transactions/developments and issues:
- definition of a dwelling
- arrangements where consortiums or syndicates are used/profit share
- transactions in connection with nursing or children’s homes or similar
- “granny flats” in the garden of existing houses
- work on charitable buildings/ for charities
- converting specific commercial property into residential property – particularly ex-pubs
- sales to Housing Associations
- sales of “substantially reconstructed protected buildings”
- buying VATable buildings
- date of completion – zero rating cut off
- supplies by members of VAT groups
- definition of building materials
- input tax on white goods and similar
- alterations for people with disabilities
- garages with dwellings
- land supplied with a property
- buying property with existing, continuing leases
- beneficial owner versus legal owner issues
- change of intention (buying land/property with the intention of using it for one purpose, but the intention changes after purchase)
- where professional/architect’s fees are incurred
- planning gains
- own use of a property
- mobile homes
- reverse premiums/surrenders/reverse surrenders re; leases
- holiday lets and
- hotels
- business use by purchaser/tenant
- contract stage of a property purchase where VAT is potentially chargeable by vendor
- timing of supplies
- work re; schools, churches, village halls, hospitals, or any other “unusual” structures
This list is not exhaustive, but I hope it gives a broad idea of where VAT needs to be considered “before the event”. As always, we are available to assist.
VAT: Update – Transfer of a registration number
Update – Request a transfer of a VAT registration number
Form (VAT68) has been updated. It is used to request HMRC to transfer a VAT registration number of a business that is the subject to a change in ownership, via a Transfer Of a Going Concern (TOGC) or a Change of Legal Entity (COLE).
VAT Groups – Updated HMRC guidance
HMRC has updated its Guidance on amendments to VAT groups.
It incudes information about who needs to submit form VAT50/51 has been added to the guidance, including information to confirm that if you are an employee, accountant or agent, you need to also provide a completed VAT53 form.
Details on VAT groups, including the pros and cons here.
A VAT Did you know?
Scottish snowballs VAT free, but if you buy Swedish snowballs, they are standard rated.
VAT – Building your new home: How and what to claim
The recovery of VAT on the project has a huge impact on the budget and care must be taken to ensure that a claim is made properly and within the time limits. You don’t have to be VAT registered to make a claim, this is done via a mechanism known as The DIY Housebuilders’ Scheme. It has specific rules which must be adhered to otherwise the claim will be rejected.
If you buy a new house from a property developer, you will not be charged VAT. This is because the sale of the house to you will be zero-rated. This allows the developer to reclaim the VAT paid on building materials from HMRC. However, if you build a house yourself, you will not be able to benefit from the zero-rating. The DIY Housebuilder’ Scheme puts you in a similar position to a person who buys a zero-rated house built by a property developer.
Who can make a claim?
You can apply for a VAT refund on building materials and services if you are:
- building a new home in which you will live
- converting a building into a home
- building a non-profit communal residence, eg; a hospice
- building a property for a charity
Eligibility
New homes
The house must:
- be separate and self-contained eg; not an extension
- be for you or your family to live or holiday in (not for sale when complete)
- not be for business purposes (although you can use one room as a work from home office)
- not be prevented from sale independently to another building by planning permission or similar eg; a granny annexe
A claim may also be made for garages built at the same time as the house and to be used with the house.
Contractors working on new residential buildings should zero rate their supplies to you, so you won’t pay any VAT on these.
Conversions
The building being converted must usually be a non-residential building eg; a barn conversion. Also, residential buildings qualify if they haven’t been lived in for at least 10 years.
You may claim a refund for builders’ work on a conversion of non-residential building into home. These supplies will be charged at the reduced rate of 5% for conversion works. If the standard rate of 20% s charged incorrectly, you will not be able to claim the standard rated amount. Care should be taken that the contractor understands the VAT rules for conversions as these can be complex.
Communal and charity buildings
You may get a VAT refund if the building is for one of the following purposes:
- non-business – you can’t charge a fee for the use of the building
- charitable, eg; a hospice
- residential, eg; a children’s home
What can you claim on?
Building materials – You may claim a VAT refund for building materials that are incorporated into the building and can’t be removed without tools or damaging the building.
What doesn’t qualify
You cannot claim for:
- building projects outside the UK
- materials or services that don’t have any VAT, eg; were zero-rated or exempt
- professional or supervisory fees, eg; architects and surveyors
- the hire of plant, tools and equipment, eg; generators, scaffolding and skips
- building materials that aren’t permanently attached to or part of the building itself
- some fitted furniture, electrical and gas appliances, carpets or garden ornaments
- supplies for which you do not have a VAT invoice
Examples of items you can, and cannot claim for are listed below.
How to claim
Submit your DIY housebuilders VAT claim using HMRC’s official Digital Claim Service. Alternatively, download and print the VAT431NB Form (for new builds) or VAT431C Form (for conversions) to apply by post.
What you need to know
You must claim within six months of the building work being completed.
You will usually get the refund in 30 working days of sending the claim.
You must include the following with your claim:
- bank details
- planning permission
- proof the building work is finished eg; a letter from your local authority
- a full set of building plans
- invoices – including tenders or estimations if the invoice isn’t itemised
- bills and any credit notes
VAT invoices must be valid and show the correct rate of VAT or they will not be accepted in the claim.
HMRC usually examine every claim closely and often query them, so it pays to ensure that the claim is as accurate as possible first time. We find a review by us before submission ensures the maximum amount is claimed and delays are avoided.
Payments made after completion of the house cannot be claimed, and only one claim can be made for the whole project, so cashflow may be an issue.
Examples of items that you can claim for
The items listed below are accepted as being ‘ordinarily’ incorporated in a building (or its site). This is not a complete list.
- air conditioning
- building materials that make up the fabric of the property eg; bricks, cement, tiles, timber, etc
- burglar and fire alarms
- curtain poles and rails
- fireplaces and surrounds
- fitted kitchen furniture, sinks, and work surfaces
- flooring materials (other than carpets and carpet tiles)
- some gas and electrical appliances when wired-in or plumbed-in
- heating and ventilation systems including solar panels
- light fittings – including chandeliers and outside lights
- plumbing materials, including electric showers, ‘in line’ water softeners and sanitary ware
- saunas
- turf, plants, trees (to the extent that they are detailed on scheme approved by a Planning Permission) and fencing permanently erected around the boundary of the dwelling
- TV aerials and satellite dishes
Examples of items that you cannot claim for
This is not a complete list.
- Aga/range cookers (unless they are solid fuel, oil-fired or designed to heat space or water)
- free-standing and integrated appliances such as: cookers, fridges, freezers, dishwashers, microwaves, washing machines, dryers, coffee machines
- audio equipment, built-in speakers, intelligent lighting systems, satellite boxes, Freeview boxes
- consumables eg; sandpaper, white spirit
- electrical components for garage doors and gates
- bedroom furniture (unless they are basic wardrobes) bathroom furniture eg; vanity units and free-standing units
- curtains and blinds
- carpets and rugs
- garden furniture and ornaments and sheds
The Scheme can be complex, but here is our Top Ten Tips for claimants.
Please contact us if you require assistance with a DIY Housebuild project.
VAT: Changes to the Capital Goods Scheme
HMRC has produced a policy paper on the simplification of the Capital Goods Scheme (CGS).
The CGS is a mechanism for adjusting an input tax claim which requires a business to spread the initial input tax claimed over a number of years. If a business’ taxable use of the asset increases, it is permitted to reclaim more of the original VAT and if the proportion of the taxable supplies decreases it will be required to repay some of the input tax initially claimed. The use of the CGS is mandatory.
HMRC says its measure details the simplification of the CGS to reduce the administrative burden for VAT registered businesses.
From 29 July 2026:
- computers and items of computer equipment will be removed from the list of assets covered by the scheme
-
the expenditure threshold for land, buildings and civil engineering work will increase from £250,000 (exclusive of VAT) to £600,000 (exclusive of VAT).
Existing assets and expenditure incurred before that date will continue to be treated under the current rules.
The Value Added Tax (Amendment) Regulations 2026 has been made to implement these changes.
The lifting of the CGS threshold for land and buildings is long overdue, but nevertheless welcome.
VAT on mobile phones – update
HMRC has updated Notice 700 to reflect the type of mobile ‘phone contracts and packages currently available and the VAT treatment of them. Details below, however, the salient issue with the update is that no input tax recovery is available if an employee has a contract in their own name (not the business itself).
VAT on the purchase or lease of a mobile phone
If a business provides its employees with mobile phones for business use, it can treat the VAT it incurs on purchasing or leasing a phone as input tax. This includes line rental charges where applicable, regardless of whether private use is allowed.
VAT on mobile phone call package and other charges
Business only
If a business incurs a recurring fixed monthly fee covering a package of calls, SMS and data, HMRC accepts that all the input tax incurred is recoverable.
If a business does not allow its employees to make private calls, all of the VAT incurred on call charges is input tax. HMRC accepts this where the business has clear rules prohibiting private use and enforces those rules.
HMRC accepts minimal private use as insignificant for VAT purposes and will not prevent the business from recovering all the VAT incurred on calls and mobile phone packages as input tax.
Charges for private calls
If a business charges employees for private use of their mobile phone it may treat the VAT incurred on that use as input tax but must account for output tax on the amounts charged.
If a business allows private use without charge, it must apportion the VAT incurred and recover only the part that relates to business use.
Method of apportionments
Businesses can choose any apportionment method that suits their circumstances, provided it produces a fair and reasonable result.
VAT on broadband connections
Where a business enters into a contract and pays for a fixed monthly charge for a broadband connection either mobile or cable to an employee’s home to enable them to work remotely, input tax can be recovered on the cost of providing the connection. This also applies to routers, installation charges and call bundles.
Some private use usually occurs, eg; entertainment packages or out of bundle charges etc. In such cases an apportionment should be made to restrict input tax recovery to only the business use of the service.
Mobile phone or broadband costs bought by the employee.
Where a business pays for a mobile, broadband or a package contract entered into by an employee with the service provider, no input tax is recoverable by the business. This is because the contract for the supply of services is between the provider and the employee, meaning the supply is made to the employee rather than to the business.
A VAT Did you know?
If you buy a hamster or gerbil in a pet shop, you will pay tax on it but if you buy a rabbit, it will be VAT free.
VAT: Consignment and call-off stock
VAT basics
Consignment, call-off stock, and sale or return goods
If a business is required to provide regular sales of goods to customers, a prudent business structure is to keep inventory in a warehouse near the customer, or which belongs to the customer. This is likely to reduce transport costs and provides quicker access to the goods thus reducing time in the supply chain. There are specific VAT rules for businesses which hold stock in foreign countries. They stipulate when, and what VAT should be charged, and if a business needs to VAT register as a non-resident trader in another country in which it is warehousing its goods.
Below we consider what the terms mean, the differences and the VAT treatment applicable.
Differences
There is often confusion over the terms; consignment and call-off stock, and they are sometimes used interchangeably. They are differentiated based on who controls access to, and use of, the goods. The difference determines the VAT requirements and compliance rules, so it is important to identify the actual arrangements a business has in place, or plan for the most beneficial outcome. Both of these measures involve the transfer of a business’ own goods – for the purposes of this article; cross-border. The transfer of goods within the same legal entity from one country to another is a deemed supply. This fact is sometimes missed, which can lead to problems. The VAT rules differ from country to country and create legal uncertainty for businesses.
In summary
- Consignment stock
Consignment stocks are created when a business transfers its own goods to another Member State to create a stock over which it has control and from which it makes supplies. Typically, there are multiple potential customers for consignment stock.
Note: Goods sent to an overseas customer on sale or return are treated in the same way as consignment stocks.
- Call-off stock
Call-off stock is the transfer of goods by a business from one Member State to another to create a stock of goods from which its customers can ‘call-off’ ie; use and pay for the goods as and when they require them.
Not call-off stock
Goods delivered to storage facilities operated by the supplier, rather than the customer, should be treated as consignment stocks (see above). If stocks of goods are dispatched by a supplier for call-off by more than one customer, this is also likely to be consignment stock.
VAT treatment
Consignment stock
There is an initial deemed supply of own goods to form the stock which takes place in the country from which the goods are originally shipped. This is usually VAT free as a dispatch and the usual documentary requirements apply.
The place of subsequent supplies of the goods, once a buyer has been found (change of ownership) is usually the country in which the stock is held.
Because the business is transferring its own goods “to itself” in another country it will be making an acquisition of goods in that country. The business is likely to be liable to register for VAT there (or appoint a fiscal representative in the country of arrival) and be responsible for import obligations in the other country. Output tax will also be due (at the rate of VAT applicable in the country in which the goods are located) on the sale to a third party.
Consignment stock – reporting requirements
If a UK VAT registered business transfers goods to another country to create a consignment stock it must complete box 6 on the VAT return reporting a value based on the cost of the goods – see HMRC Public Notice 725.
Call-off stock
As the customer has control of the goods in storage, is aware of stock movements, and may take stock whenever he requires this does not generally require the seller to VAT register in the foreign country as a non-resident trader. Such sales are treated as a “regular’ export and the seller is required to show the customer’s VAT number etc on invoices and other documentation in order to treat it as VAT free in the usual way. The time of supply for these supplies is the date the goods are called off by the customer.
Call-off stock – reporting requirements
The supply of call-off stock from the UK to a VAT registered business in another country is VAT free (subject to the normal rules). Box 6 of the VAT return should be completed using a value based on the cost of the goods as above.