Zero-rated VAT on building work for disabled customers

Most building work carries VAT at the standard 20% rate. But there are cases where certain work for a disabled customer can be zero-rated, which means you charge no VAT at all. Get this right and you save your customer money and stay compliant. Get it wrong and the liability sits with you.

Here is what you need to know.

Who qualifies for VAT relief on building work

A common myth is that the relief depends on whether the customer is on PIP or another benefit. That is not the rule.

The relief is not means-tested. It does not depend on the benefits a person does or does not receive. A person does not need to be registered disabled to qualify either.

To qualify, the work must be for someone who has:

• a physical or mental impairment that has a long-term and substantial effect on their ability to carry out everyday activities, or

• a condition the medical profession treats as a chronic sickness, such as diabetes.

Someone who is only temporarily disabled, for example with a broken leg, does not qualify. Neither does someone who is elderly but otherwise able-bodied.

Receiving certain benefits can be useful evidence that a customer qualifies. But the benefit is not the reason for the relief. The disability is.

Which building work can be zero-rated

This is the part businesses often miss. The relief does not cover every job done for a disabled person. It covers specific types of work carried out at their home.

Work that can be zero-rated includes:

• constructing ramps, or widening doorways and passages to help someone get in and out of the home or move around inside it

• providing, extending or adapting a bathroom, washroom or lavatory where this is needed because of the person's condition

• installing certain lifts, such as a stairlift designed for use by disabled people

• supplying and installing certain equipment designed solely for use by disabled people, plus repairs and maintenance to it.

The relief also covers the preparation and making-good directly linked to the eligible work. That can include groundwork, drainage, electrics and restoring the immediate decor around the job.

Work that does not qualify includes kitchens, bedrooms and general extensions, even where the reason for the work is the person's disability. If a job mixes qualifying and non-qualifying work, for example an extension that houses a new accessible bathroom plus a bedroom, you must apportion the cost. The bathroom part can be zero-rated. The rest stays at 20%.

It must be their home, for personal use

The work must be at the disabled person's private home, for their personal or domestic use, not for business use. Home includes the garden and outbuildings.

Where the work is for a child or a dependent relative who lives with the householder, the supply to the householder can normally still be zero-rated.

Materials are covered too

If you are VAT-registered and you supply the materials as part of the eligible work, those materials can also be zero-rated to the customer. You still pay VAT on materials you buy in, and you reclaim that from HMRC in the normal way.

If you are not VAT-registered, you cannot reclaim that VAT. You can instead help the customer arrange for materials to be supplied VAT-free direct from a VAT-registered supplier.

Subcontractors cannot apply zero-rated VAT for disabled customers

This one catches people out. The relief only applies to the supply made to the disabled person.

If you work as a subcontractor to another builder, your supply is to that builder, not to the disabled person. So your work is standard-rated at 20%. Only the main contractor's supply to the customer can be zero-rated.

The VAT eligibility declaration you must keep

The responsibility for applying the correct rate sits with you as the supplier, not the customer. So you need to check eligibility and keep proof.

The way to do this is to get the customer to sign an eligibility declaration confirming they qualify. If the customer cannot sign it themselves, a parent, guardian, doctor or other responsible person can sign on their behalf.

A few practical points:

• the declaration must be separate from, or clearly different to, your order form or invoice

• keep it with your VAT records in case an HMRC officer asks to see it

• do not send it to HMRC, just hold it on file.

Because of this, it is worth asking every customer up front whether the work relates to a disability. If it does, you can then work out whether it qualifies and get the declaration signed before you invoice. It is much harder to sort out after the job is done.

A related relief for the over-60s

There is also a reduced rate of 5% VAT for certain mobility aids installed in the homes of people aged 60 or over who are not disabled. This is narrower than the disability relief, but worth knowing if your customer base skews older.

The bottom line

Zero-rating can make a real difference to what a disabled customer pays, and it is a genuine selling point when you know the rules. But the relief is specific. It depends on the person's condition, the type of work, the property, and a signed declaration on file.

If you are unsure whether a particular job qualifies, check HMRC Notice 701/7 or take advice before you price the work. The cost of getting the VAT treatment wrong falls on you, so it is important you get it right or you could end of liable.