My client recently purchased an empty 3 bedroom bungalow that hasn’t been lived in for 4 years. He intends to spend £30k extending and refurbishing the property into a 4 bedroom house, which he and his family will move in to. He has the skill set to do some of the work himself, so will be buying in some of the materials and will also be acquiring the services of various contractors. I am assuming that because the property has been empty for more than 2 years the contractors will be able to charge my client the reduced rate 5% and that my client can claim this back together with VAT incurred on materials he purchases himself, via the DIY scheme?
Firstly considering the reduced rate, you are correct that the contractors will be able to charge this to the client for their work refurbishing and extending the property. However, it’s important to note that the scope of services included in the reduced-rating is much narrower than that for zero-rating the construction of a new dwellings.
The reduced-rated services are limited to work carried out to the fabric of the dwelling, and include installing goods that are building materials (notably not white goods, carpets or fitted furniture), repairs (such as redecoration), or improvement (such as the construction of an extension or the installation of double -glazing).
You can also reduce rate works within the immediate site of the dwelling that are in connection with the:
- means of providing water, power, heat or access
- means of providing drainage or security
- provision of means of waste disposal.
In order for a contractor to charge the reduced-rate, the client must provide suitable evidence that one of the two empty dwelling rules have been satisfied. Those rules are:
- the first empty home condition applies to suppliers whose work starts before occupation (following a period of the building not being lived in for two years);
- the second empty home condition applies to suppliers whose work starts after occupation. This rule applies where the following conditions are met:
- The 2 years immediately before the occupier acquired the dwelling it had not been lived in.
- No renovation or alteration had been carried out in the 2 years before the occupier acquired the dwelling (you can ignore minor works that were necessary to keep the dwelling dry and secure).
- Your services are supplied to the occupier – so if you are a subcontractor you must standard rate your work.
- Your services take place within 1 year of the occupier acquiring the dwelling.
Acceptable evidence of a dwelling being empty can be obtained from Electoral Roll or Council Tax records, utility companies, Empty Property Officers in local authorities, or any other third party corroboration that can be considered reliable.
It should be noted that the reduced-rate only applies to the supply and fit of building materials. Materials purchased on their own will be charged at the standard-rate of 20%.
With respect to the DIY scheme, a claim for VAT refund under the DIY scheme can be made by persons (individuals, partnerships or companies) who build a brand new dwelling or convert a non-residential premises into a dwelling, where they intend to occupy the dwelling themselves, or build on behalf of another, but the activity has not been carried out in the course or furtherance of business.
Clearly we are not building a new build dwelling in your client’s scenario. Therefore the question is whether or not it is subject to a non-residential conversion. A property is subject to a non-residential conversion, where the property is not designed as a dwelling, or where it is designed as a dwelling, has not been lived in for 10 or more years.
This is a separate test to the 2 year rule for the empty dwelling reduced-rate, and can often be confused with it.
Therefore, whilst your client can be charged the reduced-rate on the work to the dwelling, it will not qualify for a DIY scheme refund, because the property has only been empty for 4 of the 10 years required to be classed as a non-residential conversion.
You can read more on the reduced-rate and empty dwelling rules in VCONST07000, and more on the rules for a DIY refund claim in VCONST24000.
In association with Croner Taxwise
Image designed by Freepik