The VAT zero rating relief applies to works to install, extend or adapt a bathroom, washroom or lavatory in a disabled person’s private residence, where this is necessary due to their condition.
The relief also extends to the restoration of living space lost to the bathroom conversion.
For example:
A bathroom is extended by 8m2 and the space for this is taken from an adjoining room, leaving that room too small to fulfil its purpose. An extension is then required to that room to replace the lost space.
The zero rating of the restoration of ‘lost space’ only extends to the exact amount of space lost to the converted bathroom, measured by floor space or room volume.
So, in the example above, if a 12m2 extension was built on to the adjoining room, only 8m2 (66.7%) could be zero rated, the remaining 4m2 (33.3%) would be standard rated.
What does it apply to?
The zero rating only applies to the work required to restore the lost space, including connection to utilities. It does not extend to the construction of fixtures, such as cupboards and fitted wardrobes, heating, new sinks, or installing white goods and fittings, these are all standard rated.
What to do if VAT has been incorrectly charged:
It is not necessary to take action, but you may wish to correct the situation for the benefit of your customer. You will neither gain nor lose financially, but your customer will be refunded the VAT, and this will demonstrate that you take your customer’s interests seriously.
If you have overcharged VAT and want to correct it:
- Raise a VAT only sales credit note to your customer for the VAT incorrectly charged, a copy must be sent to the customer.
- Refund the incorrectly charged VAT to the customer. If you do not physically refund the customer, the VAT credit note will not be valid, and the VAT originally charged will remain payable to HMRC.
- Post the VAT only credit note to your records. This will mean that you will receive credit for the VAT you have refunded to the customer on your next VAT return.
What to do if you have been incorrectly charged VAT?
If the work was invoiced more than four years ago, unfortunately you cannot do anything about it now as VAT adjustments are time limited.
If the work was invoiced in the last four years, you should contact the contractor, bring this to their attention, and ask them to refund the VAT using the procedure above.
Guidance from HMRC
HMRC included guidance on the zero rating of restoring lost space up to December 2014, since then it is not something that has been actively publicised.
However, guidance on this has recently been made available again: Revenue & Customs Brief 7, VAT on lost space of bathroom and washroom conversions for disabled people, and HMRC have updated Section 6 of VAT Notice 701/7, reliefs from VAT for disabled and older people
If you have any queries please contact our VAT Team
