VAT on cladding remediation work
Published 17 December 2024
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This publication is available at https://www.gov.uk/government/publications/revenue-and-customs-brief-3-2024-vat-on-cladding-remediation-work/vat-on-cladding-remediation-work
Purpose of this brief
This clarifies HMRC’s policy on the deduction of VAT incurred on cladding remediation works which are carried out on existing residential buildings.
Who needs to read this
Developers, representative bodies of the building industry and housing associations should read this.
Background
Developers who carry out cladding remediation works to residential buildings with fire safety defects would normally incur VAT on the goods and services purchased to complete this work.
As the remediation works are carried out after the completion of the construction they can only be treated as ‘snagging’ if the work carried out is linked to the initial construction, and this was subject to either the:
- zero rate of VAT
- reduced rate of VAT
If the remediation works are not part of the initial building construction, they are subject to VAT at the standard rate.
Developers and representatives from the building industry have provided feedback on how VAT should be applied to remediation works.
This brief explains when you can recover the VAT incurred in providing remediation services.
HMRC policy
Businesses who are VAT registered can normally recover the VAT incurred on the purchase of goods and services used for their business purposes subject to the normal rules.
To recover input tax, businesses should first consider if there’s a direct and immediate link between the cost incurred and a specific output supply. The VAT may be treated as residual and recovered in line with the normal recovery on overheads where this is absent, but there is a direct and immediate link between the cost incurred and business activity as a whole.
If the remediation has a direct and immediate link to the initial construction, this is treated as ‘snagging’ and any VAT incurred may be recovered, subject to the normal rules.
Where the remediation works does not have a direct and immediate link to the initial construction, the costs may have a direct and immediate link to the general activities of the business.
This is on the condition that the cost of the remediation work is a cost component of the future taxable supplies made by the developer. In this instance input tax would be recoverable as a general business overhead, subject to the normal rules.
More information
More detailed guidelines on cladding remediation works can be found in Help with VAT treatment of remedial works — Gf11 Guidelines for Compliance.