Q:
Hi
As a subcontractor, can I claim the vat back on materials I use on a vat exempt new build site
Declan
A:
HI Declan
As with all these things it depends on various factors.
First, I presume that by “VAT exempt” you mean VAT zero-rated? I’m sorry to be pedantic but there is a significant difference between the two as under the VAT rules, you can recover input tax on costs relating to zero-rated or other taxable supplies, but not on costs relating to exempt supplies.
Construction work is “taxable” for VAT purposes. The construction of most dwellings and certain residential and charitable buildings is normally zero-rated (but see *below for comment about subcontactors services relating to residential and charitable buildings), so if that’s what you mean by “VAT exempt building work” then yes, sub contractors can recover VAT on related costs . See VAT Notice 708: VAT and Construction which is here http://tinyurl.com/3557osk on the HMRC website. Section 2.3.1 of the notice confirms the basic rule about recovery of input tax relating to taxable supplies.
So the short answer to your question is probably yes but it depends on the rules which are explained in the notice.
Section 2.1.3 of the notice explains the VAT liability of services provided by sub-contractors and section 2.2 explains the general rules about the VAT that can be recovered by builders.
There are some important exceptions though relating to recovery of VAT on certain items of building materials. See sections 11 and 12 give more detailed guidance about VAT recovery on building materials supplied in the course of construction services by builders.
*An important exception is that construction services by subcontractors in respect of certain residential and charitable buildings are not normally zero-rated – see section 16.4 of the notice. In this situation subcontactors’ services are liable to VAT at the standard rate – ie are taxable though not at the zero-rate. As their suppies are taxable, this means that subcontactors CAN recover input tax on related costs subject to the rules set out in the notice.
Hope this helps you to work things out. I’d suggest you have a look at the guidance I’ve mentioned above and maybe have a chat with your accountant about it if you need any more detailed help.
Marie