Reduced VAT Rate on Commercial to Residential Conversion - Maximizing the opportunity

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    Reduced VAT Rate on Commercial to Residential Conversion - Maximizing the opportunity

    I am going to be converting a small office block to residential (Planning Permission granted under Prior Approval) and am looking to take full advantage of the reduced VAT rate of 5% for such projects.

    I know that generally professional fees, scaffolding etc. do not benefit from the reduced rate but am told that if I enter a "Design and Build" contract with my Builder, which includes those services, he can still just charge me 5%. Having not done one of these before, my Builder is concerned that he will still have to pay 20% VAT on the non-reducible bits and so will lose out. Would the following work to reassure him?

    *Builder spends £50k on Architects, Surveyors, Scaffolding etc. (all the stuff you cannot get reduced VAT on)

    *Builder also spends £180k on materials etc. where he pays 5% VAT; and £170k on labour etc. (including his own profit) where he pays no VAT

    Total Job cost is £400k (+VAT)

    *In total Builder has paid VAT on 20% x £50k plus 5% x £180k = £19k

    *Builder charges me VAT of 5% x £400k = £20k

    *His VAT bill is [£20k - £19k] = £1k and that’s it.

    Sound good to me.

    I guess the builder would ask his accountant to "sign off" on the above, and would agree in case.

    I was not aware of the 5% reduced VAT - good to know, I have a small office in London, that I may convert into residential within May/2019


      Mot a great explanation from HRMC but (Section 7) is useful


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