How builders can charge only 5% VAT on construction projects

If you are a builder or property developer, you might be wondering how you can apply the 5% VAT rate? Our VAT Partner, Alan Davis is regularly asked about the 5% VAT rate so he has put together a short video to cover some of the key points. In this short video, Alan takes a look at: 

✅ What is the 5% VAT rate?

✅ How the 5% VAT rate works

✅ What qualifies for 5% VAT? 

If you have any questions, please contact Alan directly at

The 5% VAT rate in the construction industry

What I tend to find with clients in the construction industry is that they know that the 5% VAT rate is available for works to houses, but they’re sometimes either just not sure, or a wee bit worried that HMRC will come along later on and challenge them on it. So, this is a perfectly common scenario and one that I work with on a regular basis.

So, before we jump into a few examples, it’s always worth bearing in mind that your circumstances will be fairly unique to you, and that in the circumstances you should always take professional advice based on your facts before you make any big decision in terms of VAT.

How a builder client won work by pitching at 5% VAT

One recent example where I’ve been working with a client, a builder client, who was pitching for some work. Together we sat down and confirmed that the 5% rate of VAT applied, and the client was then able to confidently pitch for the work at 5%. And in that case the VAT aspect of the bill was more than £10,000 less than it would have been if he’d estimated 20% VAT.

He won the work, the client was delighted, and in fact the client was able to spend some of the saving on extra works that they did later on in the project. So all in all, sitting down, thinking about VAT before pitching for the work really enabled the client to get comfortable and ensured that they were actually able to win the work in the end.

Advising customers on VAT who have had work done by builders

I’ve also dealt with VAT at 5% from the other side, from the customer’s side. And in that scenario they’d had some work that qualified for 5%, it was some insulation work, but the builder had charged 20%. So, we had a chat, and I outlined how he could fix it. So we went back to the builder, the builder issued him a credit note for the 15% extra VAT that he’d charged, and a cheque, so that left the client really happy. Luckily the builder took it quite well, the builder took it as learning as well, so they benefited and they made sure that they charged 5% going forward as well.

What qualifies for the 5% VAT rate?

Well, if you’re converting single dwelling into multiple dwellings, like flats, or vice versa from flats into a single dwelling, that qualifies. If you’re converting a commercial property into a residential property, but not the other way around from residential to commercial, that qualifies. Or if you’re renovating a building that’s been empty for two years, a dwelling that’s been empty for two years, that qualifies as well. And finally, measures for energy efficiency also qualify, so that includes things like insulation and PV panels.

Any questions about 5% VAT on construction projects?

So, that’s a summary of how the 5% VAT Rate applies in the construction industry. You may be thinking now about some projects that you’ve got on, or some in the pipeline. If you have any questions, feel free to contact me directly at

The information is this video is of a general nature and seeks to highlight some of the issues which could be affecting you and/or your business, including changes to financial regulation and legislation. Viewers should not rely on this information without seeking professional advice on its application in their circumstances.