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VAT in construction estimates.

VAT treatment in construction depends on the type of project, the status of the client, and the nature of the work. Getting it wrong can mean under-quoting or leaving your client with an unexpected VAT bill.

Authored by Alexandr Vreme & Maksym Vasylkov
Published July 2026 — Next review July 2027

VAT treatment depends on specific project circumstances. This article provides general educational guidance only. Always consult current HMRC guidance or a qualified tax adviser for your specific project.

Zero-rated (0%)

Zero-rated construction work includes:

• New build dwellings — the construction of a new residential property
• Approved alterations to listed buildings — qualifying works to a listed residential building
• Converting a non-residential building into a dwelling

No VAT is charged to the customer, but the contractor can still recover input VAT on materials and subcontractor costs in the normal way.

Reduced-rate (5%)

The reduced 5% rate may apply to:

• Renovations of dwellings empty for 2+ years — bringing a long-term vacant property back into use
• Installation of energy-saving materials in qualifying circumstances (e.g. insulation, solar panels, heat pumps in residential properties)
• Conversions that change the number of dwelling units (e.g. a house into flats)

Conditions and qualifying criteria apply. It is essential to verify that the project meets HMRC’s conditions before applying the reduced rate.

Standard-rate (20%)

The standard 20% VAT rate applies to the majority of construction work:

• Repairs and maintenance on existing buildings
• Improvement and alteration work that does not qualify for zero or reduced rating
• Commercial property construction (except where specific reliefs apply)

Domestic reverse charge

The domestic reverse charge applies to most VAT-registered subcontractor-to-contractor supplies from March 2021 onwards. Instead of the subcontractor charging VAT, the contractor accounts for it on their return. This prevents missing trader fraud in construction supply chains.

Estimates must clearly state when the reverse charge applies so the client knows no VAT is payable on the invoice but must be accounted for through their VAT return.

CIS implications

Where the Construction Industry Scheme (CIS) applies, estimates should note that deductions will be applied to the labour element of payments. This does not change the estimated price, but it affects the net amount received by subcontractors after CIS deductions.

Questions to ask

• Is this project a new build or a renovation?
• Is the client VAT-registered?
• Is the property domestic or commercial?
• Does the domestic reverse charge apply to this supply chain?
• Have I confirmed the VAT treatment with a qualified adviser?

Check current HMRC guidance at gov.uk for the Construction Industry Scheme and VAT rates.