The single most common mis-rating in the trades is treating an extension as if it were new build. The rate depends on what the work does to the building, whatever the trade, so the same electrician can be zero-rated on one site, on 5% on the next and on 20% on the third. There is also a hard, dated cliff edge coming on energy-saving materials — 1 April 2027 — that is worth pricing for now.
Guide · Updated August 2026
| Item | Figure | Applies from |
|---|---|---|
| Registration threshold | £90,000 | 1 April 2024 |
| Deregistration threshold | £88,000 | 1 April 2024 |
Both were confirmed unchanged for 2025-26 and 2026-27 at Budget 2025.
There are two separate tests and trades usually only know about the first.
The backward look: register if taxable turnover in the last twelve months — rolling, not your accounting year — exceeds £90,000. Notify within 30 days of the end of the month in which you crossed it. Registration takes effect from the first day of the second month after crossing.
The forward look: register if you expect taxable turnover to exceed £90,000 in the next 30 days alone. Notify by the end of that 30-day period, and registration is effective from the date you realised. It catches a trade winning a single large contract: one £100,000 job with a 30-day programme means registering immediately, regardless of the previous twelve months.
Construction of a building designed as a dwelling or number of dwellings, a building for a relevant residential purpose, or one for a relevant charitable purpose, is zero-rated under VAT Notice 708. The supply must be made in the course of construction, before completion, and by a person with "person constructing" status.
"Designed as a dwelling" has four conditions, and all four must hold:
The fourth is the trap, and it catches annexes constantly. A granny annexe built with a planning condition preventing it from being sold or let separately from the main house fails condition four — so it is standard rated at 20%, not zero. The client who was quoted with no VAT is then £14,000 short on a £70,000 job, and the argument about who absorbs it is not one anybody wins.
Materials supplied with zero-rated or reduced-rated work take the same rate as the services. On a genuine new-build, the materials you supply and install go out at 0% too.
Non-qualifying goods remain standard rated regardless of the rate on the rest of the job:
The scaffolding point is a live issue on new-build sites. Scaffolding erection as a service follows the rate of the construction work; scaffolding hired separately is standard rated. Scaffolders invoicing a mix of erection, hire period and dismantle on one zero-rated site need the invoice to reflect that split honestly. Agree the split with the main contractor in writing before the first application for payment.
The evidence requirement on the third route is where jobs go wrong. A verbal assurance from the client that the house "has been empty for years" is not evidence. Get the Empty Property Officer letter or the Council Tax record before you price at 5%, because if it turns out the property was occupied eighteen months ago, the 15-point difference is yours to find.
Twenty per cent applies to repairs, maintenance, extensions and alterations to existing occupied dwellings, plus architects' and surveyors' services and separately hired plant and scaffolding.
The extension point deserves its own sentence. An extension to an existing occupied house is standard rated, however new the structure is and however much it looks like new build from the scaffold. This is the single most common mis-rating in the sector. New build means a new building; adding to an existing one is an alteration.
A builder prices three jobs in the same month, each £80,000 of work and materials:
Three identical-looking invoices, £16,000 of difference. Quote the third as if it were the first and you have priced a £16,000 hole into the job. Where the customer is a VAT-registered contractor, the standard-rated job also goes onto the reverse charge; the zero-rated job stays outside it.
The installation of energy-saving materials in residential accommodation is zero-rated from 1 May 2023 to 31 March 2027. From 1 April 2027 it reverts to the 5% reduced rate.
That is a hard, dated cliff edge and it is the most time-sensitive VAT item facing the trades. A job that straddles it changes rate mid-programme. If you install heat pumps, solar or insulation, the contracts you are signing now for delivery in spring 2027 need to say which rate applies and what happens if the work slips past 31 March.
Qualifying materials: controls for central heating and hot water systems; draught stripping; insulation; solar panels; wind turbines; water turbines; ground source heat pumps; air source heat pumps; micro combined heat and power units; wood-fuelled boilers. Added 1 February 2024: water source heat pumps; batteries for storing electricity; smart diverters; and groundworks for ground or water source heat pump pipework. From the same date the relief also covers buildings used solely for a relevant charitable purpose.
One restriction that catches merchants and installers who also sell over the counter: the relief applies only where the materials are installed. Supply-only is standard rated.
| Item | Figure |
|---|---|
| Joining threshold | Taxable turnover excluding VAT £150,000 or less in the next year |
| Leaving threshold | Total income including VAT over £230,000 in a year, or expected in the next 30 days alone |
| First-year discount | 1% off the sector rate for 12 months after VAT registration |
| Limited cost business rate | 16.5% |
| Limited cost business test | Relevant goods under 2% of flat rate turnover, or over 2% but under £1,000 a year |
The two construction sector rates:
| Sector | Rate |
|---|---|
| Building or construction services — labour only (materials under 10% of turnover) | 14.5% |
| General building or construction services (materials 10% or more) | 9.5% |
Both categories cover electricians, plumbers, joiners, carpenters, painters, plasterers and roofers. The rate is set by the materials proportion, not by the trade. A plumber supplying his own boilers is on 9.5%; the same plumber on labour-only subcontract work is on 14.5%.
The structural point for a CIS subcontractor is that the scheme has largely stopped working. A labour-only subcontractor whose sales are all reverse-charged has, in effect, no VAT-inclusive turnover to apply a flat rate to, and its relevant goods spend is low by definition — so the limited cost business rate of 16.5% looms as well. The Flat Rate Scheme still suits a trade selling direct to domestic customers, outside CIS and outside the reverse charge. If you went onto it before March 2021 and your work is now mostly subcontract, check whether it still pays.
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No. An extension or alteration to an existing occupied dwelling is standard rated at 20%, however new the structure is and however much it looks like new build on site. Zero-rating applies to the construction of a new building designed as a dwelling, a building for a relevant residential purpose, or one for a relevant charitable purpose — and adding to an existing building counts as an alteration. On an £80,000 extension quoted as if it were new build, the missing VAT is £16,000, and it has to be recovered from the householder after the fact or absorbed.
Usually not. Zero-rating requires the building to be designed as a dwelling, and that has four conditions: self-contained living accommodation, no direct internal access to any other dwelling, construction in accordance with statutory planning consent, and no prohibition on separate use or disposal. An annexe fails the last one wherever the planning consent prevents it being sold or let separately from the main house. Where that prohibition exists the annexe is standard rated at 20%. Read the planning consent before you price the job, because the condition is usually there in writing and it decides a fifth of the contract value.
There are three routes. Changing the number of dwellings, where the number of single household dwellings after the work differs from before — up or down — so a house into two flats qualifies but refurbishing existing units does not. Converting non-residential premises to residential use, where the premises were never used residentially or have not been for ten years or more, which covers barns, offices, shops and pubs. And the renovation of a dwelling that has been empty for two years or more, evidenced by Electoral Roll data, Council Tax records or a certificate from the local authority's Empty Property Officer. Get that evidence before pricing at 5%.
It ends. The installation of energy-saving materials in residential accommodation is zero-rated from 1 May 2023 to 31 March 2027, and from 1 April 2027 it reverts to the 5% reduced rate. That is a hard dated cliff edge, and it is the most time-sensitive VAT item facing the trades right now. If you install heat pumps, solar panels, insulation or battery storage, any contract you sign now for delivery in spring 2027 should state which rate applies and what happens if the programme slips past 31 March. Note also that the relief only covers materials that are installed — supply-only sales are standard rated either way.
Usually not. The two construction sector rates are 14.5% for labour-only services where materials are under 10% of turnover, and 9.5% for general building services where materials are 10% or more, and the materials proportion sets the rate whatever the trade. But a labour-only subcontractor whose sales all fall under the VAT domestic reverse charge has almost no VAT-inclusive turnover to apply a flat rate to, and low relevant goods spend also risks the 16.5% limited cost business rate. The scheme still suits a trade selling direct to domestic customers, outside CIS and outside the reverse charge.
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