I do the books for two companies with the same director. One company renovates houses for resale and the other is a construction company.
The company that usually renovates has just started a job building a couple of new builds. They are using the construction company to do all the work.
My question is...should there be VAT on the invoice from the construction company to the renovation company for the work completed?
I have read that VAT is claimable on new builds but not on the labour to construct them and that these invoices should be Zero rated.
Am I correct in thinking (just thought of this while typing, some times it is just good to think out loud) that the invoice should be split down into material and labour and that the labour be zero rated but all the material at standard 20%. Or wouldn't the construction company be out of pocket?
Hi Sarah
Only skim read this. Things that pop into my head (which might be a bad thing) - artificial separation/are they both VAT registered/CIS scheme/please add a link re your VAT thoughts already?
Just diving out!!!!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Sarah, your post begs some technical questions, and the Client should consider having the relevant docs reviewed. (PM me if that owuld be helpful.)
I assume your 'new builds' are dwellings. Subject to some conditions, construction of new dwellings is zero rated. This applies to the services of construction, and to the installation of 'building materials' into the building. (Some items, such as 'white goods,' carpets, are always standard rated.) Where the renovations company invoices labour and materials, the whole invoice is zero rated.
The sale of new houses is zero rated, but the letting (ASTs) is exempt.
So just to confirm, all of the work and materials that the construction company has completed/supplied in building the new dwelling builds is Zero rated? Other than white goods, carpets etc??
So, sorry trying to get my head around this, is this a good or bad thing for the construction company? They have had to pay vat on purchasing supplies but I guess they can at least claim this VAT back. It still seems to me that they are out of pocket??
VAT is not my strong point sadly, maybe I should do yet another course to make myself more informed
If the construction company is buying goods for installation in the new build, apply for monthly VAT Returns, so they can claim the VAT back sooner, and help cash flow. HMRC Notice 708 is also helpful on the question of goods which cannot be zero rated.
