The VAT recovery for cladding replacement

The Government has announced that developers will be responsible for, and need to bear the cost of, replacement cladding. The Government will also be fully supporting residents/leaseholders in these types of buildings, this being buildings over 11 metres high.

What does this mean?

Whether VAT is chargeable on the costs, at what rate, and whether it can be recovered by developers in their VAT returns is going to be a key question for many businesses. If there is no VAT charged on the costs, or the ability to recover the VAT, then of course this means a saving of up to 20% on costs.

What are the VAT costs on your project?

Each development project must be looked at on the case by case basis.

When could VAT not be charged?

Following the tragic circumstances that took place at Grenfell in 2017, HMRC indicated (not officially) that the replacement of cladding could be free of VAT in certain circumstances:

• The original cladding was installed as part of the original zero-rated construction.
• The remedial work is being commissioned by the person who commissioned the construction (although this can be transferred by way of a Transfer Of a Going Concern, depending on the circumstances).
• The remedial work is carried out as soon as possible.

If VAT is chargeable, then businesses should consider whether it’s possible to recover the VAT. There has been no guidance from HMRC on this to date, but we are anticipating that now the government have made this announcement, HMRC guidance will soon be published regarding the overall VAT recovery position.

What do we advise next?

The VAT on building and construction is an ever changing and complex area, therefore it is imperative to effectively analyse the VAT position to ensure VAT is being charged and reported correctly, as well as identifying opportunities to recover as much VAT as possible.

How can we help?

If you would like to discuss your VAT position or are looking for further guidance on this matter, please contact our VAT partner Jas Dhillon (jaspaldhillon@lubbockfine.co.uk), or your usual Lubbock Fine contact.