Sub-contract tradesman charging VAT on new build work
QUESTION: I'm a self-employed VAT-registered tradesman and normally carry out small residential jobs for private individuals. I always charge VAT unless it is a new house that I am working on. But I've been offered work on a new residential home and the contractor says it can be zero rated. Is this correct?
ANSWER: A zero-rate of VAT is available for supplies in the course of the construction of new buildings designed as dwellings (houses and flats) or those intended for certain relevant residential accommodation (nursing or retirement homes) or charitable use; or the conversion of certain non-domestic buildings to dwellings or relevant residential accommodation if the customer is a housing association and the construction of civil engineering works necessary for the development of a permanent park for residential caravans.
It should be noted that the zero-rating only covers supplies in the course of construction of a qualifying building and also applies to the provision of materials normally incorporated into the building.
There are specific regulations which provide detail on the definitions of a “qualifying building”, “in the course of construction” and also to the types of materials deemed to be “normally incorporated” into a building.
Depending on the customer and the type of building, a certificate of use may be required in order for you to zero rate the supply of your services. There is no requirement to hold a certificate for zero-rated in connection with buildings that qualify under normal rules as new build dwelling houses.
But in order to zero rate work on a new qualifying building for relevant residential or charitable purposes, which includes a residential home the supply must be made to the person who is to use the building, and only then if a certificate of use is obtained from the customer before the supply is made.
Furthermore only the customer who owns and intends to use the building can certify the work, therefore if the owner of the building plans to sell or let it, rather than use it himself, the contractor who constructs the building cannot zero-rate their supplies.
This also means the certificate cannot be passed on by the main contractor to sub-contractors and therefore if you are invoicing the main contractor you will have to charge VAT under normal rules. The contractor will be entitled to reclaim this VAT as normal input VAT.
If you are engaged to carry out work directly by a customer who is entitled to give a certificate then you can apply the zero rate. It is also important that you do not just accept a certificate. You must also take all reasonable steps to check the validity of the certificate. If this includes corresponding with your customer to confirm the details of the use of the building, you should retain such correspondence within your records.
You will need to retain the valid certificate within your VAT records. If you have taken all reasonable steps to check the validity of the certificate and acted in good faith, you will not normally be asked to account for VAT if the certificate is subsequently found to have been issued in error.
There are also similar conditions in respect of certain construction services which may be charged at a reduced rate of 5 per cent.
:: Feargal McCormack (firstname.lastname@example.org) is managing partner of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.