Changes to VAT reduced rate on construction services

Fri, 23 Sep 2022

Legislation relating to the reduced rate of 5% VAT for construction services on certain properties on the Island is being amended, with changes taking effect from 1 January 2023.

The amendment of the Value Added Tax Act 1996 sets out that certain construction services which are provided to eligible buildings (dwellings, residential homes, properties used for relevant charitable purposes and places of worship) are permitted to be charged at the reduced rate of 5% VAT, rather than the standard rate of 20%.

Services eligible for the reduced-rate include:

• alteration, extension or enlargement of an eligible building
• repairs to an eligible building or to the boundary of that building
• repairs or maintenance to the land within the boundary of an eligible building which is required for safety reasons to prevent damage (or further damage) to that building
• installation, repair or maintenance of building materials ordinarily incorporated into an eligible building

This legislation also provides that the supply of building materials at the same time as the service will also qualify for the reduced-rate, and provides a definition of building materials.

What is changing?

For the majority of construction services carried out on a home (and other eligible buildings) there will be no change to the VAT rate.  For example, the following services (including related building materials) will continue to be eligible for the reduced rate:

• renovations and extensions
• roof and window replacement, repairs and maintenance
• installation of kitchens and bathrooms
• retaining walls, underpinning, flood prevention

The changes that may impact some VAT-registered businesses and their customers are:

• clarification of the VAT rate on some services at 20%, such as the construction and repair of buildings within the curtilage of a domestic property, which is not self-contained living accommodation or which is to be used for business purposes, eg. separate garages, sheds, garden rooms, beauty salon rooms, etc
• decrease of VAT rate on some services from 20% to 5%, such as installation and servicing of fires/log-burners and chimney sweeping, gutter repairs, boundary wall repairs, and supply by a sub-contractor to a main contractor

The following are not included within the reduced rate:

• installation or servicing of domestic appliances (e.g. washing machines, fridges)
• fitting of carpets, blinds, curtains
• gardening services
• construction services on commercial property

Where can I find more information?

A VAT Notice is now available which explains what services (and related goods) are and are not eligible for the reduced rate from 1 January 2023.

The Notice also provides guidance on what to do if you supply services which are subject to different rates of VAT.

You can also contact Customs and Excise:

• email customs@gov.im
• call 648130, Monday to Friday 8.30am-4.30pm

 

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