- A VAT-registered builder charges VAT on labour. There is no exemption for labour.
- The rate on the labour is the rate for the job, which is 20%, 5% or 0% depending on the building and the work.
- Labour and building materials supplied together by the builder take the same rate.
Yes. A VAT-registered builder charges VAT on labour, at whatever rate applies to the job: 20%, 5% or 0%. Labour and materials supplied together take the same rate. A builder who is not VAT registered charges no VAT at all.
The rate comes from the job
VAT is charged on services as well as goods. A builder's labour is a service, so a VAT-registered builder adds VAT to it like anything else they supply. There is no separate rate for labour.
On most work to an existing, occupied home the rate is 20%. Repairs, maintenance, extensions and loft conversions are all standard rated. See VAT on extensions and refurbishment.
The labour takes a lower rate only when the project itself qualifies. Building a new home is 0%. A qualifying conversion, or the renovation of a home empty for two years, is 5%. Installing energy-saving materials in a home is 0% until 31 March 2027.
As an example of scale only, on £60,000 of labour the VAT is £12,000 at 20% and £3,000 at 5%. That is not a figure for your project.
Why "labour is VAT free" is a myth
The idea usually comes from one of three places, and none of them is a rule about labour.
- The builder was not VAT registered. No VAT was charged on anything. But they paid VAT on their materials and cannot recover it, so it is in the price.
- The job was a new build. The labour was at 0% because the project was zero rated. So were the materials the builder fitted.
- Somebody offered to leave the VAT off. A VAT-registered builder has to charge VAT on taxable work. Leaving it off for cash is not a relief.
A fourth source is newer. Since 1 March 2021 the domestic reverse charge has meant that many invoices between VAT-registered construction businesses show no VAT added. The VAT is still due, at the same rate. The customer accounts for it instead. It does not apply to homeowners.
Labour-only or supply and fit
How the job is contracted changes what the rate lands on. When the builder supplies and fits, the building materials take the same rate as the labour. When you buy the materials yourself, the merchant charges you 20%, whatever rate the labour carries.
On a 20% job the difference is small. On a 5% or 0% job it can be large.
Where it goes wrong
- Whether the project qualifies for a lower rate at all, which depends on several conditions and not just the headline.
- Who is supplying the materials, and what that does to the rate on them.
- Which items stay at 20% whoever fits them.
- One rate applied across every line of a quote, in either direction.
The sensible next step
If you have a quote, send it to us and we will tell you whether there is anything worth pursuing. If there is, the fee is fixed and agreed before we start. Plenty of work is correctly charged at 20%, and where that is the answer we will say so.
Questions people ask
Is there VAT on labour?
Yes. Labour is a service, and a VAT-registered business charges VAT on its services. On most domestic building work that is 20%, and it drops to 5% or 0% only where the job itself qualifies for a relief.
Does a builder who is not VAT registered charge VAT on labour?
No. A builder who is not registered cannot charge VAT on labour or on materials. They will still have paid VAT on the materials they bought, and because they cannot recover it, that cost is part of their price.
Can a builder charge 5% VAT on labour?
Only where the job itself qualifies for the reduced rate. The main cases are a qualifying residential conversion and the renovation of a home that has not been lived in for two years before the work starts. The builder does not choose the rate.