VAT at 20 Per Cent: What It Adds to a Repair Budget

by | Jan 4, 2011 | Contract Administration and Major Works, Maintenance and PPM

From 4 January 2011, the standard rate of VAT rose from 17.5 per cent to 20 per cent. For a business that could recover VAT, the change mainly affected cash flow. For leaseholders paying a service charge, for many charities and for residential landlords, VAT is a real cost, and every repair and maintenance budget rose with it.

What the change added

On a contract sum of £100,000 before VAT, the tax rose from £17,500 to £20,000. On a major works programme for a block of flats, the increase could be enough to matter to each leaseholder’s share. Fees for professional services rose in the same way.

Which rate applied to work in progress

The rate depends on the tax point, which in building contracts is usually the earlier of payment or the issue of a VAT invoice. Work valued and paid before 4 January 2011 carried 17.5 per cent. Interim payments made from that date carried 20 per cent, even on a contract let in 2010. It was important to check that contractors were invoicing at the right rate.

Not every job is standard rated

  • Repairs and maintenance are standard rated.
  • Some conversion work, such as creating flats from a non residential building or changing the number of dwellings, can qualify for a reduced rate.
  • Approved alterations to listed dwellings could at that time be zero rated, while repairs to the same building were not.

The boundaries are detailed and depend on the facts, so take advice before assuming a lower rate.

What to do

  1. Revisit budgets and estimates. Any figure prepared in 2010 at 17.5 per cent needed updating.
  2. Review service charge estimates. If a consultation for major works was based on the old rate, explain the change to leaseholders.
  3. Prioritise. If the budget is fixed, a planned maintenance programme helps decide what must be done now and what can safely wait.
  4. Get the description right. A clear specification separating repairs from qualifying alterations or conversion work helps support the correct VAT treatment.

Our Planned Preventative Maintenance service helps owners spread cost sensibly over time, and our Major Works service manages larger programmes. See how we delivered two mansion blocks in one programme.