HMRC VAT Guidelines on Remedial Construction Works: Key Points

HMRC published the guidelines providing the necessary explanations and clarifications of the existing rules regarding the VAT treatment of remedial works, including the cladding. 

The guidelines include information on general VAT rules applicable to construction and remedial works, relevant definitions, examples of how to apply the rules on the VAT treatment of remedial works, and a list of documents that taxable persons should keep.

Purpose and Scope of Guidelines

The guidelines emphasize that the 20% standard VAT rate usually applies to construction and remedial works. However, in some instances, such as when services are supplied for qualified conversion or renovations and alterations of empty residential premises meet requirements, the 5% reduced rate is applicable. Moreover, a zero VAT rate can only be applied to construction services provided when constructing a qualified building.

Furthermore, the guidelines define snagging as remedial work to correct faulty craft or replace defective materials. Snagging is not a separate supply of construction service, as the original contractor usually carries it out under the original contractual terms and conditions. The HMRC included a list of conditions for remedial work to be considered snagging.

The HMRC emphasized that it has the right to decline any VAT claim submitted by the taxable person if the documentation is incomplete or incorrect. The documents needed for determining the VAT  liability include certification of completion, documents relating to the date of first occupancy of the building, original construction plans, fire and safety reports, planning permission, and other relevant documents.

Conclusion

The HMRC's guidelines are detailed and include various examples from real-life situations. Therefore, taxable persons involved in construction and remedial works should review the guidelines to determine their rights and obligations.

The guidelines highlight other relevant HMRC procedures for applying VAT rules and regulations to remedial works, including the VAT Construction Manual and Buildings and Construction (VAT Notice 708).

Source: HMRC, VATabout