Conversion work is inside CIS. Alteration and extension of a building are construction operations, and that is what a loft or garage conversion is. No grey area there.
The money is in the VAT.
Certain residential conversions qualify for the reduced 5% rate of VAT instead of 20%, and the clearest case is work that changes the number of dwellings in a property.
Convert a loft into two more bedrooms in a house that stays one house, and nothing changes. It is a standard rated job. Convert that same house into two flats, and the qualifying conversion work can fall to 5%. Turn two flats back into one house and the same principle applies in reverse.
There is also a separate reduced rating for a dwelling that has stood empty for two years or more before the work starts.
Why this is worth knowing before you quote
The gap between 20% and 5% is bigger than most conversion firms’ entire margin on a job. If your customer is a homeowner or a private landlord, they cannot recover VAT, so the rate is a straight cost to them and a straight difference in your price against the firm quoting alongside you.
Two firms quote the same conversion. One charges VAT at 20% because that is what it always does. The other knows the job qualifies at 5% and prices accordingly. There is only one of those quotes the customer is signing.
The conditions matter and they are not loose. The reduced rate applies to qualifying conversion work and to materials you supply with that work, it depends on the nature of the building before and after, and it needs evidence on file to support the rate you charged. Applying 5% to a job that does not qualify leaves you owing HMRC the difference out of your own pocket, so this is worth checking job by job rather than assuming.
Your homeowner customers are end users
The domestic reverse charge does not apply to work you do for a homeowner. They are an end user, so you charge VAT in the normal way, at whichever rate the job qualifies for.
It does apply where you are working for a VAT-registered developer or main contractor who is not the end user. Firms that do both need the two treated separately on the system rather than decided by whoever raises the invoice.
CIS runs the same way. A homeowner is not a contractor, so nothing is deducted from your invoices on domestic work. The moment you pay subcontract labour, though, you are a contractor yourself, with verification, deductions and monthly returns to run.
Stage payments and deposits
Conversions get paid in stages, and the stage payment is where the VAT and the cash flow both go wrong.
A deposit taken before work starts can create a tax point when you receive it, which means the VAT can be due before the job has earned anything. Take a run of deposits in a strong month and you can end up funding somebody else’s future work out of a VAT bill you are already committed to.
Stage payments need to line up with real progress on site, and the payment schedule in the contract needs to match what the customer actually agreed to.
Job costing on long domestic jobs
A conversion runs for weeks or months, and the profit position moves the whole way through it.
Variations are the usual culprit. Steel that turned out to be bigger than the drawing said, a staircase moved after the customer changed their mind, an extra rooflight nobody priced. Each one is small, and none of them get invoiced.
We set up job costing so labour, materials, subcontractors and variations all land against the job while it is running. You want to know a job is losing money in week three, rather than at the year end when the accounts arrive.
What we do
CIS run properly on the labour you pay out, with verification and returns handled.
VAT reviewed job by job so the right rate goes on the quote in the first place, and the evidence sits behind it.
Job costing across long projects, with variations captured as they happen.
Cash flow planning that copes with stage payments, deposits and retentions.
And the standard work underneath it. Accounts, corporation tax, VAT, payroll and self assessment.
Who we work with
UK conversion and building limited companies turning over between £500,000 and £5 million, anywhere in the country.
Common questions
Is a loft conversion inside CIS?
Yes. It is alteration and extension of a building, which is a construction operation.
Does CIS apply if my customer is a homeowner?
Not to their payments to you, because a private homeowner is not a contractor. It does apply to what you pay your own subcontractors.
Can I charge 5% VAT on a conversion?
On qualifying residential conversions, yes. The clearest case is work that changes the number of dwellings in the property. It needs checking against the specific job before you quote it.
Does the reverse charge apply to my domestic work?
No. Homeowners are end users, so you charge VAT as normal.
When is VAT due on a deposit?
Usually when you receive it, which can be well before the work is done. Worth planning for.
Book a call before you price your next conversion. We will tell you whether it qualifies for 5% VAT and what you need on file to support it.
Common questions
Does CIS apply to loft and garage conversions?
Conversion work is inside CIS. Alteration and extension of a building are construction operations, and that is what a loft or garage conversion is. No grey area there. The money is in the VAT. Certain residential conversions qualify for the reduced 5% rate of VAT instead of 20%, and the clearest case is work that changes the number of dwellings in a property.
Does the VAT domestic reverse charge apply to loft and garage conversions?
Usually yes. The domestic reverse charge follows CIS scope. Where you supply loft and garage conversions work that falls inside CIS to a customer who is VAT registered, registered under CIS and is not an end user, you do not charge VAT on the invoice. Your customer accounts for it instead. Supplies to homeowners and to end users stay outside it, and you charge VAT the normal way.