Property & Construction

The property sector has to deal with many VAT issues, each of which depends on the exact nature of the supply being made. For example the transaction may arise from construction, work on existing building, disposal of a property interest and the type of property involved, both before and after will affect the VAT treatment. The basic position is that property transactions are exempt from VAT, which means that associated input tax cannot be recovered, however there are a great many exceptions when the supply is either zero, standard or reduced rated. The best known example is new build for residential property, which is zero rated rated for the construction and zero rated for the first sale or long lease of a dwelling. Specific advice is required for each situation to ensure the many requirements are met and that the VAT position is properly understood from the start.

This is a special method for accounting for VAT in respect of most supplies of building and construction services. Where a VAT registered subcontractor would normally account for its VAT on sales and the contractor would account for the VAT on it purchases, the VAT domestic reverse charge means it is the contractor, in some circumstances, who accounts for both the sales and purchase VAT on their return. Overall the VAT position is no different and it is just who has to account for it to HMRC that changes, the theory being that it tackles the “missing trader” fraud, which exists in the sector.

Knowing when and if to apply the special VAT treatment depends on where the business is the hierarchy of delegated works but when it does apply you need to invoice and account for correctly.

Not everybody involved in property and construction needs to register for the Construction Industry Scheme (CIS), for example architects and scaffolding hire (without labour) are not caught, but most activities connected to permanently or temporarily altering a building or structure, from initial preparation to cleaning the inside post construction work, counts for CIS purposes.

If you contract other people to carry out these types of activities for you as part of your, you must register as a contractor  with HMRC. If your business does not operate in the construction sector but you spend more than £3 million on construction in a 12 month period, you will still have to register.

As a business that acts as a subcontractor you don’t have to register but the tax deducted at source is at a higher rate for those not registered.

If you operate as a subcontractor and contractor you must register for both and we can assist you with this and the monthly returns.

It is possible for subcontractors to apply for gross payment status. This means the contractor paying you does not need to make a deduction for tax and instead your business will just account for the tax and national insurance once your accounts and tax returns have been completed, in the same way as non-construction businesses. 

In order to apply for gross payment status, which helps significantly with the cashflow of a business in this sector, you will have to pass some threshold tests in terms of turnover. For the previous 12 month period, these thresholds are currently £30,000 for a sole trader and £100,000 for company or partnership (unless £30,000 multiplied by number of directors or partners is greater than £100,000, in which case you use that threshold).

HMRC do also reserve the right to refuse or remove gross payment status if tax compliance for the business or associated individuals is not kept up-to-date, which includes directors own tax returns.