VAT on extension

a1234555

My understanding is that builders source materials VAT-free. Does this mean that when it comes to paying for the extension we would need to pay 20% on the total bill or just the work excluding materials? I also read that certain materials might have reduced VAT such as insulation, how would we go about about getting the reduced rate for this?

Lastly we do want to get solar panels on top of the extension. I've previously been told that when installing solar panels other work done to get them installed is also VAT free. I.e. if you get the batter installed at the same time as the panels, you don't pay VAT on the battery. However, if you get the batter installed later, you pay full VAT. Could this then be used as a loophole to get the whole extension VAT-free since we wouldn't be able to get solar installed without the extension?

FlimFlam01

The builder will give you a price to build a conservatory, it's up to you to determine if that's a price you find acceptable.

You won't get VAT free building work if you are getting solar panels installed.  If you want VAT free batteries then you need to get the installer to do that at the same time.

Section62

a1234555 said:

My understanding is that builders source materials VAT-free.

That is a myth.

Builders have to pay VAT at the applicable rate on the materials they buy.

VAT registered builders have to charge the customer VAT at the applicable rate, including on the materials purchased.  They then have to account to HMRC for the VAT on what they have charged, against which they can 'claim' (i.e. offset) the VAT they have paid on their inputs (e.g. materials).

The idea of VAT is that it is the end beneficiary who pays the tax, but each step along the process of manufacture and processing is taxable on the 'value added' (why it is "VAT").  A non-VAT registered trader pays VAT on what they buy and passes that on to the client, but doesn't add any extra VAT themselves.

Because people talk about "claiming the VAT back" there's the idea you describe that builders get the materials VAT-free.

Separately, there are situations where work is exempt from VAT or VAT is charged at a lower rate.  In those cases it is possible to reclaim the VAT, but that isn't the same thing.

I'm very doubtful you can have an extension built without paying VAT just because you've put solar panels on it.  But you could always ask HMRC whether this might be a possibility.

Doozergirl

Section62 said:

a1234555 said:

My understanding is that builders source materials VAT-free.

That is a myth.

Builders have to pay VAT at the applicable rate on the materials they buy.

VAT registered builders have to charge the customer VAT at the applicable rate, including on the materials purchased.  They then have to account to HMRC for the VAT on what they have charged, against which they can 'claim' (i.e. offset) the VAT they have paid on their inputs (e.g. materials).

The idea of VAT is that it is the end beneficiary who pays the tax, but each step along the process of manufacture and processing is taxable on the 'value added' (why it is "VAT").  A non-VAT registered trader pays VAT on what they buy and passes that on to the client, but doesn't add any extra VAT themselves.

Because people talk about "claiming the VAT back" there's the idea you describe that builders get the materials VAT-free.

Separately, there are situations where work is exempt from VAT or VAT is charged at a lower rate.  In those cases it is possible to reclaim the VAT, but that isn't the same thing.

I'm very doubtful you can have an extension built without paying VAT just because you've put solar panels on it.  But you could always ask HMRC whether this might be a possibility.

...It's not a possibility. 

Certain energy saving measures can be VAT free but not as part of an extension.  It has to be a separate contract.  

Insulation to an extension is just seen as meeting the regulations.  The VAT saving only applies to upgrades.  

The government like to make it difficult. HMRC do have guidance on this which is as clear as mud, so most builders won't get involved because the only ones to suffer should they interpret incorrectly are the builders. https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086

To reiterate what you said, @Section62. VAT registered businesses act as unpaid tax collectors.   They don't buy anything VAT free and it costs money to do all
the accounting required to pass the homeowner's VAT money on. 

Builders are not sitting twidling their moustaches over VAT.  The government takes it, homeowners might save it, the builder just hands it across.