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VAT liability of flooring materials used in new-build property

Q: My client is a flooring contractor. He has supplied and installed a mixture of hardwood flooring, carpets (with underlay) and ceramic floor tiles in a new build dwelling for a developer. The developer is insisting that the whole invoice is zero rated as the supply is on a new build dwelling. Please can you confirm?

A: The VAT liability of goods that are incorporated in a property by a builder is normally determined by the liability of the construction/incorporation services (see para 11.2 of VAT Notice 708). If the construction services qualify for zero rating (per the conditions in para 3.1.2), so would any ‘building materials’ being incorporated by that supplier as part of that service. However, this ONLY applies where the goods are 'building materials' per the definitions in para 13.1; essentially this is goods that are both incorporated, and of a kind that would ordinarily be incorporated into that type of dwelling. Carpets plus most electrical and furniture items are specifically excluded from being ‘building materials’. Provided your client has sufficient evidence that a qualifying dwelling is being constructed, and your client's services are in the course of that construction, the installation of all types of flooring will be zero rated, the wooden flooring and tiles will also be zero rated, but the carpets or underlay will be standard rated.