Hmrc Tax (2)

This is an advice note, not definitive guidance. HMRC are clear that in case of doubt you must seek clarification with a tax advisor.

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses.

This guidance is designed to provide further information and criteria for VAT exemption for Home Improvement Agency (HIA) services and VAT Relief for building work related to disabilities.

Home Improvement Agency Fees

The situation regarding VAT charged by Home Improvement Agencies (HIAs) for their services is quite varied. Some HIAs charge VAT for on their fees, while others do not. Additionally, some may charge for specific elements of their service. This advice note sets out our understanding of the criteria.

To exempt its services from VAT, a HIA needs to meet three conditions, all of which must be fulfilled:

1. Service Recipients: The individuals receiving the services must be “elderly, sick, distressed, or disabled persons”.

2. Service Provider: The HIA must be either a Local Authority or have Charitable Status. To obtain Charitable Status, an organisation must meet one of the following criteria:

  • It is registered with the Charity Commissioners.
  • It is registered as an Industrial or Provident Society under the 1965 Act and established for charitable purposes.
  • It is registered under the Friendly Societies Act of 1974 and established for charitable purposes.
  • It is recognised as a charitable organisation by the Inland Revenue (only applicable in Scotland and Northern Ireland).

3. Exempt Activity: The service provided by the HIA must fall into the category of exempt activities, which requires passing two tests:

Test 1: The service should be a welfare service directly linked to providing care, treatment, or instruction that promotes the physical or mental well-being of elderly, sick, distressed, or disabled persons. An example of an exempt activity within this context is providing support or instruction to help individuals live independently in the community. For a HIA, this includes services like home visiting, advice on benefits and welfare, and support to manage the stress of building work.

Test 2:  If the service provided meets test 1 but involves tasks that a person would typically be expected to do for themselves (e.g., making financial arrangements, liaising with builders, obtaining quotes, supervising work), the individual must be assessed as unable to perform these tasks “safely, adequately, or without significant pain or discomfort”. This assessment must be conducted by a properly trained or experienced person, which in the case of an HIA, would be the caseworker.

HIA services often consist of various support measures that are agreed upon. Sometimes, these services may include tasks that are not typically exempt from VAT, such as creating plans or scheduling building work.

When a service is made up of different parts, it can be seen as one package for VAT purposes. The main part of the service is what customers focus on, while the other parts support and enhance the main service. The VAT rules follow the main part of the service.

If the main part of the service is VAT-exempt support services, then the entire service might be exempt from VAT. To qualify for VAT exemption, the service must be provided directly by the HIA as a comprehensive support package within an agreed timeframe, with the support and advice element being the main focus of the service provided.

However, if a HIA service focuses more on tasks like preparing plans, work schedules, and supervising construction, with little or no caseworker support, then the service provided would not qualify as a welfare service. In such cases, VAT exemption would not apply.

If you are a HIA that primarily supports clients with the technical aspects of building works, like drawing plans and supervising the works on site then the VAT exemption is unlikely to apply to you.

However, if you have a caseworker led services that primarily supports to client through the whole process then you may have a good case for claiming the VAT exemption.

As any VAT is included within the total amount of a Disabled Facilities Grant, it is worth looking at the added value that a caseworker led service can offer – as you also save 20% in VAT compared to a primarily technical service.

VAT Relief for Building Work Related to Disabilities

Understanding VAT Relief

VAT relief for building work related to disabilities is not a refund system. HMRC does not provide VAT refunds for entitled individuals. Instead, if you qualify for VAT-free building work, the contractor will not charge VAT.

Building Work That Can Be VAT-Free

The following building work can potentially be VAT-free. This applies to a primary residence, including gardens and outbuildings.

Ramps, Doorways, and Passages:

  • VAT is not applicable if you’re having a ramp built in or into a dwelling due to a disability. This excludes lowering doorway thresholds or replacing floor coverings.
  • No VAT is required if you’re widening a doorway or passage due to a disability. This includes widening an existing doorway, passage, or path across a garden. However, it does not cover the installation of completely new doorways, passages, rooms, windows, or paths.

Bathrooms, Washrooms, and Lavatories:

  • VAT is exempt if you’re having a new bathroom, washroom, or lavatory installed or extending/adapting an existing one to assist with a disability.
  • Examples include replacing a bath with a shower or walk-in bath, installing a ground floor bathroom, or altering an existing bathroom for wheelchair access. This exemption does not apply to general bathroom improvements or redecorations.

Installation or Repair and Maintenance of Lifts:

  • VAT is not applicable when you’re having a lift installed to aid movement between floors of a dwelling due to a disability. The exemption also includes repair and maintenance of the lift.

Preparation or Restoration Work:

  • VAT is not required for necessary preparation or restoration work directly related to the VAT-free building work.
  • Examples include widening doorways (including supply and fitting of wider door frames and doors) or bathroom adaptations (including replacement of porcelain goods and necessary re-tiling).

Building Materials and Goods

  1. If you use a professional contractor (builder, plumber, etc.) for the eligible work, the building materials used will also be VAT-free.
  2. VAT-registered contractors can reclaim VAT on the materials they purchase, while their supply of materials will be VAT-free.
  3. Non-VAT registered contractors cannot reclaim VAT on materials. However, they can help to arrange for VAT-free supply of materials directly from a VAT-registered supplier.

Building Work That Is Not VAT-Free

VAT-free building work for disabled individuals is limited to the specific work listed above. Other work, even if done due to a disability, does not qualify for VAT relief. Examples of ineligible work include constructing a downstairs bedroom, upgrading domestic heating systems, replacing windows, refitting kitchens, or extending/adapting the property for additional rooms.

Qualifying for VAT-Free Building Work

To have eligible building work done VAT-free:

  • There must be someone living in the dwelling who is chronically sick or disabled.
  • The building work must be performed in their own home.
  • They do not need to be registered disabled or eligible for other benefits, but they must be chronically sick or disabled.
  • “Chronically sick or disabled” refers to physical or mental impairments with a long-term and substantial adverse effect on everyday activities or conditions treated as chronic sickness by the medical profession.
  • Temporary disabilities or incapacitations, such as a broken limb, or being elderly without being chronically sick or disabled, do not qualify.

Proving Eligibility for VAT-Free Building Work

To prove eligibility for VAT-free work, the contractor or supplier will likely request a written declaration signed by the client.

HMRC have a suggested version of a declaration form to prove eligibility for VAT-free work.

The ‘VAT reliefs for disabled people – eligibility declaration by a disabled person‘ can be downloaded below.

For further information and guidance on VAT please visit the gov.uk website which includes support with online returns, rates, charging and record keeping.

VAT – GOV.UK (www.gov.uk)

VAT reliefs for disabled people - eligibility declaration by a disabled person preview image.

VAT reliefs for disabled people - eligibility declaration by a disabled person

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Whether it’s a question about the DFG legislation, you need advice on how to commission a HIA or anything in between – we’re here to help.