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HMRC internal manual

VAT Construction

HM Revenue & Customs
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Supplies of building materials by contractors: goods supplied with reduced-rated services

Provision allowing reduced-rating

The law that allows reduced-rating for building materials is as follows:

  • for reduced-rated residential conversions (VCONST06000); Value Added Tax Act 1994, Schedule 7A, Group 6, Item 2
  • for reduced-rated renovations or alterations (VCONST07000) with effect from 1 June 2002; Value Added Tax Act 1994, Schedule 7A, Group 7, Item 2.

Conditions for reduced-rating

For the ‘goods’ element of a builder’s supply to be reduced-rated, all the following conditions must be met:

  • the goods must be building materials (VCONST02000)
  • they must be supplied with reduced-rated services (delivered goods are therefore always standard-rated)
  • those services must include the ‘incorporation’ of the building materials in the premises concerned or its immediate site.

Reduced-rated services and goods that are not building materials

If goods that are not building materials are incorporated in a building, both the goods and services elements are standard-rated, because they do not fall as a qualifying service (VCONST07610).