Providing you are happy the conditions in para 7.1.2 of VAT Notice 708 are met, you are correct in your understanding that the construction services qualify for 5% VAT. Where the builder is also installing items that are not building materials (e.g. carpets and most kinds of appliances and built-in furniture) these elements (labour and materials) are chargeable at 20%. With regards to VAT recovery, the client can only recover VAT as input tax if it has been correctly charged in the first place (as well as the normal requirements, e.g. the cost is for taxable supplies and is supported by a valid VAT invoice etc). If the client intends to solely use the barn for taxable standard-rated FHL supplies it will be able to recover the VAT it incurs as input tax, but only to the extent the VAT has been correctly charged. If the builder has charged 20% VAT on work that should be at 5%, HMRC will only allow a claim for 5% and will insist that you go back to your supplier to get them to credit and refund back to you the overcharged VAT.
These publications from Markel Tax were correct at the time of going to press and should be considered as principles-based guidance only. To check current validity, call the Markel Tax helpline. ICAEW (as distributor) disclaims all liability for any errors or omissions.
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