Quoting the wrong VAT rate on a building job and paying it out of my margin

Written for general builders, groundworkers, carpenters and joiners, roofers, plasterers, bricklayers and kitchen and bathroom fitters in the UK, from one-van firms to small main contractors.

The short version

1. Work out what is being built.New homes, conversions into homes and renovating long-empty homes can carry a lower rate. Extensions, repairs and refurbishing occupied homes take the standard rate.
2. Get the evidence before you quote.Proof the home was empty long enough, the planning permission, or the client's certificate. Keep it on file.
3. Put the rate and reason on the quote.Get a reduced or zero rate wrong and the missing VAT can come out of your margin.

A homeowner compares your price with the next builder's, VAT included. On building work the rate depends on what is being built, not on who you are, so the same value of work can carry three different rates. Settle the rate before you quote, put the rate and the reason for it on the quote, and keep the evidence on file.

The reduced renovation rate needs at least 2 years empty, and it is your margin that pays if the evidence is not there.

Points that catch builders out

• Keep the evidence for any reduced or zero rate: the client's certificate for relevant residential or charitable use, the planning permission, and proof a property was empty for 2 years.
• A subcontractor to a zero-rated new-build job can zero-rate its own services, but materials sold without fitting are standard rated.
• Zero-rated work counts towards the registration threshold, so mostly new-build work can still take you over £90,000 of taxable turnover in 12 months. As of Oct 2026.
• A self-builder reclaiming VAT under the DIY Housebuilders Scheme relies on your invoices showing the VAT correctly. If they do not, their claim fails.
• If a subbie has been charging you VAT when the domestic reverse charge applied, do not simply stop paying: agree credit notes and reissued reverse charge invoices, and correct both VAT accounts.

Two schemes worth checking

The Cash Accounting Scheme makes VAT due on what you receive rather than what you invoice, which helps when clients pay late. You can join with expected taxable turnover up to £1.35 million and must leave above £1.6 million, and it is not available for reverse charge supplies. As of Sep 2026.

On the Flat Rate Scheme, the rate is 9.5% for general building or construction services and 14.5% for labour-only building or construction services. A limited cost trader, one whose spending on relevant goods is less than 2% of its VAT-inclusive turnover, or more than that but less than £1,000 a year, must use 16.5%, or 15.5% in its first year of registration. The test applies every VAT period, so test each period rather than assuming every labour-only subbie is a limited cost trader (VAT Notice 733). As of Oct 2026.

Agreeing is evasion by both sides. A builder registered for VAT must charge it and account for it.

If you work as a CIS subbie

• Making Tax Digital for Income Tax counts your turnover before CIS deductions. For example, a subbie whose 2024 to 2025 return showed £55,000 of turnover, but who received £44,000 after 20% CIS, was over the £50,000 threshold and had to use it from 6 April 2026. As of Oct 2026.
• A limited company subbie sets the CIS taken from it against its own PAYE on the Employer Payment Summary, month by month, and claims any balance after 5 April. For example, £11,000 of CIS never claimed is the company's money sitting with HMRC. As of Sep 2026.

Asked in Greymill

Ask it about your own business

Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.

More for construction and building in the UK

• Setting a day rate that still pays after holidays, rain days and the vanWork out what an hour of labour really costs you, then price for the margin you want, not a markup that looks like it.Read the lesson
• Busy on three jobs and still short for Friday's wagesWhy builders run out of cash while making a profit, and the weekly forecast, applications and retention ledger that close the gap.Read the lesson
• Starting a job before building control, party wall notices and the phase plan are sortedNo general licence is needed to trade as a builder in the UK, but building control, party walls, CDM and asbestos all have to be dealt with before the first day on site.Read the lesson
• Homeowner or main contractor: the paperwork that decides whether I get paidA homeowner job runs on consumer law and a job for a business runs on the Construction Act, so the paperwork you need and the clauses to strike are different.Read the lesson
• My regular labour-only subbie looks more like an employee every yearCIS registration does not make someone self-employed. How to tell, what it costs if HMRC disagrees, and the checks builders skip when they take people on.Read the lesson
• Proving to homeowners, main contractors and councils that I am a safe pair of handsEach kind of client checks different proof: reviews and trust marks for homeowners, accreditation for main contractors, registration for public tenders.Read the lesson
• The main contractor has knocked thousands off my application without a proper noticeOn a construction contract a deduction needs a valid pay less notice served in time. Without one, the notified sum is due in full, and you have suspension, interest and adjudication behind you.Read the lesson

Open the interactive lesson · Every construction and building lesson · What Greymill knows about the trade