VAT on building work catches more homeowners out than any other line in a quote, and the reason is that there is no single rate. Most work on a house you already live in carries VAT at the standard rate of 20 per cent, which HMRC applies to the labour and the materials together. Building a genuinely new dwelling is zero rated, so no VAT is charged at all. A narrow set of jobs qualify for a reduced rate of 5 per cent, and those cases are worth knowing because the saving is significant and it is easy to miss.
So the practical answer for most people is that an extension, a kitchen, a bathroom or a refurbishment of the home you live in will carry 20 per cent VAT if the contractor is VAT registered. A new house will carry none. A conversion that changes the number of dwellings, or the renovation of a property that has stood empty for at least two years, may qualify for 5 per cent. This guide explains each case, how VAT should appear in a quote, and the one thing to sort out before work begins rather than after.
The three rates and where each one lands
HMRC's own summary of VAT for builders is the authoritative starting point, and it divides domestic work three ways.
Standard rate of 20 per cent, which covers most work on an existing home, including extensions and conversions that do not change the number of dwellings, kitchens, bathrooms and general renovation work
Zero rate, which covers the construction of a new dwelling and certain work carried out for disabled people in their own homes
Reduced rate of 5 per cent, which covers converting a building into a dwelling or between residential uses, renovating a home that has been empty long enough to qualify, and some energy saving measures
The important point is that the rate follows the nature of the work, not the size of the bill or who is paying it. Two jobs of identical value in the same street can carry different rates because one creates a dwelling and the other improves one.
Why a new build pays nothing and an extension pays 20 per cent
This is the comparison people find hardest to accept, and the logic behind it is that VAT is not meant to be a barrier to creating new housing. Building a new house from scratch is zero rated. Adding to a house that already exists is an improvement to an existing asset, so it sits at the standard rate.
The line between the two is drawn more strictly than most people expect. Demolishing a house and rebuilding it can qualify as new construction, but only where the demolition is genuinely complete, and retaining a facade or a party wall because planning required it is treated differently from choosing to keep part of the old building. Because the consequence is the entire VAT bill on a whole house, this is a question to settle with HMRC or an accountant at design stage, not something to assume from a similar project someone mentions.
The 5 per cent cases that genuinely come up
Two of the reduced rate cases turn up regularly in Kent, and both are commonly missed.
The first is a property that has been empty for a sustained period. HMRC's buildings and construction guidance sets the qualifying period at at least two years immediately before work begins. That covers a genuine proportion of the inherited houses, long term probate properties and neglected cottages that get refurbished around here, and the difference between 5 per cent and 20 per cent on a full refurbishment is a large sum.
The second is a conversion that changes the number of self contained dwellings, such as turning a large house into two flats, or turning two flats back into one house. The test is whether the number of single household dwellings actually changes. Refurbishing existing units without altering how many there are does not qualify, however extensive the work.
From working with clients on older Kent properties, the reduced rate is missed far more often than it is claimed, and almost always for the same reason. Nobody asks the question until the invoices have already been raised at the standard rate.
The evidence you have to gather before work starts
This is the practical trap, and it is the reason the reduced rate gets lost even when the property clearly qualifies. To apply 5 per cent to an empty property renovation, a contractor needs evidence that the property really was empty for the qualifying period, and the usual proof comes from the local authority, whether that is council tax records or a letter from the council's empty property officer.
That evidence is straightforward to obtain while the house is still empty and the council's records are current. It becomes considerably harder once the property is occupied, refurbished and back on the council tax register as a normal home, because you are then asking the council to confirm a historic state of affairs. Requesting it before the first invoice is raised is the whole difference between a claim that works and one that does not.
Whether your builder charges VAT at all
Not every contractor is VAT registered. Registration becomes compulsory once taxable turnover passes the VAT threshold, currently £90,000 over a rolling twelve months, and a smaller trader below that figure may not be registered and cannot charge VAT.
This matters when comparing quotes, because two prices are not comparable unless you know whether each includes VAT. A quote from an unregistered sole trader and a quote from a VAT registered firm can look 20 per cent apart on the headline and be far closer on genuine value, or the reverse. The question to ask outright is whether the figure quoted includes VAT and at what rate, which is the same discipline that applies to reading building quotes generally.
Reclaiming VAT if you are building your own home
If you are managing your own new build or a qualifying conversion rather than employing a contractor for the whole thing, the DIY housebuilders scheme lets you reclaim VAT on building materials you bought yourself, which puts you in a similar position to someone buying a finished new house.
Three conditions catch people. You can make only one claim, so it has to be complete. For work finished on or after 5 December 2023 the claim must be submitted within six months of completion, and completion is evidenced by the certificate rather than by when you moved in. And the scheme covers building materials rather than everything you spent money on, with fitted furniture excluded apart from fitted kitchen furniture.
What we have learned about VAT and quotes
We are builders rather than tax advisers, and anything with a five figure consequence should be confirmed with HMRC or an accountant before it is relied on. That said, 30 years in the trade, including 12 years running contracts as a project manager, has made one pattern very clear.
In our experience, establishing the correct VAT rate in writing before the first invoice works better than charging the standard rate and sorting it out afterwards because a private homeowner is not VAT registered and therefore has no mechanism to reclaim VAT on a contractor's services at all. There is no annual return in which it comes back. If work that qualified at 5 per cent was invoiced at 20 per cent and the paperwork supporting the lower rate was never obtained, that money is gone, and on a full refurbishment it can be the largest single avoidable cost on the job.
The related pattern is that VAT is where a cheap quote and a complete quote diverge most sharply. A price that excludes VAT sitting next to one that includes it is not a comparison, and it is worth resolving before it shapes a decision, in the same way that a realistic budget for home improvements has to be built on figures that all mean the same thing.
The short answer
VAT on building work is 20 per cent for most jobs on a home you already occupy, nothing at all on the construction of a new dwelling, and 5 per cent for a narrow set of cases, chiefly a conversion that changes the number of dwellings and the renovation of a property empty for at least two years. The rate follows the nature of the work. Whether your contractor is VAT registered is a separate question from which rate applies, and both belong in the conversation before a quote is accepted rather than after.
If you are planning work in Kent and want a quote that is clear about what is included and at what rate, AGC Carpentry & Builders is based in Ashford and works across the county, including Maidstone, Canterbury, Folkestone, Hythe and Dover. You can see recent projects on our work page or follow us on Instagram, and get in touch to talk through what your project involves.
