Contractors carrying out the renovation of dwellings that have been empty for two years or more can still apply the VAT reduced rate of 5%. Although this has been in place for a while now, there are instances where the rules have been misinterpreted to the detriment of the contractors.
There are two circumstances where the reduced rate can apply.
First empty home condition
This covers the situation when a dwelling has been empty for two years immediately before renovation commences. In these circumstances the renovation costs for the supply and fitting out of building materials is charged at the reduced VAT rate of 5%. There should be evidence available that the property has been empty for the two years immediately before work is started. HMRC will accept proof from reliable third parties such as the local authority or utility companies.
Second empty home condition
Under the second empty home condition, the VAT reduced-rate still applies so long as the dwelling has been empty in the two years immediately prior to purchase. This is a different test to the first empty home condition described above.
In addition, there are three other conditions to meet which are:
- There must not have been any renovations or alterations to the dwelling in the two years before the occupier acquired the dwelling although general works to keep the dwelling in good condition (e.g. dry and secure) can be ignored;
- The services are supplied to the occupier directly; (so subcontractors must charge VAT at the standard-rate) and
- All services must take place within one year of the occupier acquiring the dwelling.
If you would like VAT advice or assistance, please contact Andy Summers, Rugby 01788 539000 or Jon Kicks, Leicester 0116 261 0061.