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Can a building company recover VAT on household fittings?

Q: My client is a builder working on some new build dwellings for a developer. He had completed the main build and is now on the final stages so is installing integrated white goods and carpets. Can he recover the VAT on these and does he charge VAT to the developer?

A: As a builder, the rate of VAT you charge for your services will normally determine the rate of VAT you charge on any goods you ‘incorporate’ in the building (or its site). So, if your services are zero-rated, then so are the goods. However this is only the case where the goods that you are incorporating are ‘building materials’. If the goods are not ‘building materials’, you must charge VAT at the standard rate on the supply of those goods. Carpets and integrated white goods are not building materials therefore the builder would charge VAT to the developer on these. The builder would however be able to zero rate the installation of these materials (see para 11.2 of VAT Notice 708). Since the builder is using the materials to making a taxable supply, the input tax is recoverable.