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Should a subcontractor Zero Rate supplies to a housing main contractor?

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This question comes up on a regular basis because it has cash flow implications for the main contractor.

If a contractor constructs a new building they will normally have to charge VAT at the standard rate. The contractor may, however, be able to zero-rate your supply if they are involved in constructing a qualifying building. A qualifying building can be:

  • a building ‘designed as a dwelling’ ;
  • a building that will be used solely for a ‘relevant residential purpose’ ; or
  • a building that will be used solely for a ‘relevant charitable purpose’ (for non-business use or as a village hall).

If the building qualifies the client issues a certificate to the Main Contractor (section 17 of Notice 708)

This certificate has the force of law.
Certificate for zero-rated and reduced-rated building work.
1. Address of the building:
2. Name and address of organisation receiving the building work:
VAT Registration number (if registered):
Charity registration (if registered):
3. Date of completion (or estimated date of completion) of
the work:
Value (or estimated value) of the supply: £
Name, address and VAT registration number of building contractor:
4. I have read the relevant parts of Notice 708 Buildings and construction and certify that this organisation (in conjunction with any other organisation where applicable) will use the building, or the part of the building, for which zero-rating or reduced-rating is being sought solely for (tick as appropriate ):
a relevant charitable purpose, namely by a charity in either or both of the following ways:
otherwise than in the course or furtherance of business or
as a village hall or similarly in providing social or recreational facilities for a local community
a relevant residential purpose, namely as:
(a) a home or other institution providing residential accommodation for children
(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder
a hospice
residential accommodation for students or school pupils
residential accommodation for members of any of the armed forces
a monastery, nunnery or similar establishment or
an institution which is the sole or main residence of at least 90 per cent of its residents
and will not be used as a hospital, prison or similar institution or an hotel, inn or similar establishment.
5 I certify that the information given is complete and accurate and acknowledge that if the building, or the part of the building, for which zero-rated supplies have been obtained, within a period of 10 years from the date of its completion:

  • ceases to be used solely for a relevant residential purpose and/or a relevant charitable purpose;
  • is no longer used to the same extent for a relevant residential purpose and/or a relevant charitable purpose decreases; or
  • is disposed of,

a taxable supply will have been made, on which this organisation will have to account for VAT at the standard rate. .
Name (print):
Position held:
Date:
Signed:

General warning
1. HMRC reserves the right to alter the format of the certificate through the publication of a new notice. You must ensure that the certificate used is current at the time of issue.
Warnings for the issuer
2. You may be liable to a penalty if you issue a false certificate.
3. You are responsible for the information provided on the completed certificate.
Warnings for the contractor
4. You must take all reasonable steps to check the validity of the declaration given to you on this certificate.
5. This certificate does not automatically confer zero-rating or reduced-rating on your supplies. You must check that you meet all the conditions for zero-rating or reduced-rating your supply – see Notice 708 Buildings and construction.

 

However, the main contractor can not issue certificates to its subcontractors…

16.4 Should subcontractors accept certificates?

No. If you are a contractor working to a main contractor, you should not be issued with a certificate. You must always standard-rate your supply when working on a certificated building.

This means the Main Contractor has to pay the VAT to the subcontractors and then recover the VAT on its next VAT return which for smaller Main Contractors can cause problems.

steve@bicknells.net


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