How Does VAT Work on Building Works in the UK?
VAT on construction work is not a flat 20%. Different types of work attract different VAT rates — 20%, 5%, or 0% — and the applicable rate depends on the type of work, the type of building, and the specific circumstances. Getting the VAT treatment wrong can lead to either overpaying or underpaying HMRC, with significant consequences in either direction.
Important note: This is a general guide. VAT is a complex area and specific advice should always be sought from a qualified accountant or VAT specialist for your particular circumstances.
Standard Rate (20%)
The standard 20% rate applies to most construction work on existing residential and commercial properties — repairs, maintenance, improvements, refurbishments, and extensions to existing dwellings. If you're having a kitchen extended, a bathroom refurbished, or a loft conversion built on your existing home, you'll generally pay 20% VAT on the contractor's supply of services.
Reduced Rate (5%)
The reduced 5% rate applies in certain specific situations: renovating or altering a residential dwelling that has been empty for two years or more; converting a non-residential building into a dwelling or dwellings; converting a building to change the number of dwellings it contains (e.g. converting a house into flats, or multiple flats into a single dwelling); and installing certain energy-saving materials and heating equipment in residential properties.
The empty-property reduced rate is particularly relevant for investors and developers acquiring properties that have been vacant. Two years of vacancy must be evidenced — typically through council tax records or utility bills — and the reduced rate applies to the qualifying renovation works.
Zero Rate (0%)
The zero rate (0% VAT) applies to the construction of a new dwelling that has not previously been occupied. This covers ground-up construction of new houses and flats for residential occupation. It also applies to certain conversions of non-residential buildings to residential use (where the 5% rate also applies — the distinction matters for eligibility and VAT reclaim mechanics).
Where a developer builds new dwellings for sale, the sale itself is also zero-rated — meaning the developer can reclaim input VAT on construction costs but does not charge output VAT on the sale price.
VAT Reclaim for DIY Housebuilders
Individual homeowners who build their own new home (or convert a non-residential building to a home) are entitled to reclaim the VAT they have paid on materials, even though they cannot register for VAT themselves. This is done through HMRC's DIY Housebuilder VAT Refund Scheme, with a single claim submitted after the building is completed.
The Domestic Reverse Charge
Since 2021, a domestic reverse charge applies to VAT-registered construction businesses working for other VAT-registered businesses in the construction supply chain. Instead of the subcontractor charging VAT and the main contractor reclaiming it, the main contractor accounts for the VAT directly. This change affects cash flow in supply chains but has no direct impact on the VAT position of the end client.
RCB is VAT-registered and applies the correct VAT treatment to all works. We confirm the applicable VAT rate in our contract documentation so clients know exactly what they're paying before work starts.
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