If you`re looking to hire subcontractors for a new build project, one of the questions that may come to mind is whether or not they will charge VAT. VAT, or Value Added Tax, is a tax that is added to most goods and services in the UK, currently set at 20%. The answer to whether subcontractors charge VAT on new builds is not a simple one, as it can depend on a number of factors.
Firstly, it`s important to understand that VAT is charged on labour and materials for most construction projects, including new builds. However, subcontractors may be exempt from charging VAT if they are not registered for VAT themselves. If a subcontractor`s turnover is below the VAT registration threshold (currently £85,000), they are not required to register for VAT and therefore cannot charge VAT on their services.
Another factor to consider is the type of work being carried out by the subcontractor. Certain types of work, such as installing energy-saving materials or building new homes, are eligible for reduced rate VAT of 5%. However, this reduced rate only applies to the materials used for the project, not the labour costs.
If the subcontractor is registered for VAT and their turnover exceeds the VAT registration threshold, then they will charge VAT on their services. It`s important to note that VAT is added to the total cost of the project, which includes both labour and materials. This can make a significant difference to the final cost of the project, so it`s important to factor in VAT when budgeting for your new build.
It`s also worth noting that if you are a VAT registered company, you may be able to recover VAT that you have paid to subcontractors as part of the construction project. This can help to offset the cost of VAT and make the project more affordable.
In conclusion, whether or not subcontractors charge VAT on new builds can depend on a number of factors. If the subcontractor is not registered for VAT and their turnover is below the registration threshold, they will not charge VAT. If the subcontractor is registered for VAT, they will charge VAT on their services, which includes both labour and materials. It`s important to factor in VAT when budgeting for your new build project and to consider whether you are eligible to recover VAT that you have paid to subcontractors.