is designed for occupation by a single household either as a result of having been originally constructed for that purpose (and has not been subsequently adapted for occupation of any other kind), or as a result of adaptation;
consists of self-contained living accommodation;
has no provision for direct internal access to any other dwelling or part of a dwelling;
is not prohibited from separate use by the terms of any covenant, statutory planning consent or similar provision; and
is not prohibited from separate disposal by the terms of any covenant, statutory planning consent or similar provision.
Definition 4: “Multi-occupancy dwelling”
This means any dwelling that meets the following conditions:
is designed for occupation by persons not forming a single household either as a result of having been originally constructed for that purpose (and has not been subsequently adapted for occupation of any other kind), or as a result of adaptation;
is not to any extent used for a relevant residential purpose; consists of self-contained living accommodation;
has no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling; is not prohibited from separate use by the terms of any covenant, statutory planning consent or similar
provision; and
is not prohibited from separate disposal by the terms of any covenant, statutory planning consent or similar provision.
When do these definitions apply? Chapters 2 and 8:
Reduced rated conversions of properties to different number of single household dwellings.
143 Appendix 3
Apportionment Composite and multiple supplies
One other issue can affect the VAT cost of your conversion or renovation. In most cases, your contractor's services will include some work at 20% and some work at 0% or5%. The contractor has to identify the work that qualifies for the 0% or 5% rate on the invoice, otherwise the whole lot is liable to VAT at 20%.
But the circumstances aren't always clear cut, which is why there are rules to help calculate the correct amount of VAT, as explained below.
There are two different types of supply:
mixed supplies which include goods or services that are part of the same contract/order but have different VAT rates; and
composite supplies where there is a similar mix of goods and services but one of these
"elements" is the main element and the other elements are regarded “for the better enjoyment” of the main element.
I've explained these in more detail below. Mixed developments at different rates of VAT
An important principle in VAT is the concept of “mixed supplies” (sometimes called “multiple supplies”) This is when two or more goods or services, which are part of the same contract/order and billed for a single amount, are liable to VAT at the different rates. This often happens in the case of property development, especially where the contractor is carrying out construction work on mixed developments, which could include zero-rated new construction services, reduced rate qualifying conversion work and standard rated extensions and alterations.
What does this mean?
It means that the contractor has to apportion his price between the different elements of the work, itemizing those elements that are liable to VAT at the different rates on the invoice and charging VAT on the different elements at the appropriate rate. A good example would be a zero-rated book sold with a DVD for a single price. The seller has to charge VAT on the part of the price that relates to the standard rated DVD.
If the supplier can’t itemize the different elements properly, then everything covered by the invoice is liable to VAT at the standard rate.
In Chapters 7 and 8, I've discussed how apportionment can apply to contractors' services that include work at 20%, 5% and 0%.
144 In practice, contractors should be able to identify work at different rates of VAT because they usually itemize their expenditure in some detail when costing work. Otherwise, HMRC will normally accept any fair method of apportioning prices.
Apportionment can also be applied to work done on common areas of the property; for example work on the roof or foundations. For example suppose a contractor's invoice shows that 85% of the conversion of a property including a number of dwellings is eligible for 5% while the remaining 15% is at 20%. In that case, the cost of work on the roof and
foundations could also be apportioned between the 5% VAT rate and the 20% VAT rate in the same proportions. HMRC’s guidance about apportionment is in VAT Notice 708, paragraphs 7.7 for conversions and 8.5: for
conversions http://tinyurl.com/pv9wvxh. There is also further information about how apportionment in paragraph 16 http://tinyurl.com/gv67hpt. Composite supplies at one single rate
The opposite to “mixed supplies” is the concept of “composite supplies”. A composite supply is where a supply comprises a number of individual elements which individually have different VAT liabilities.
However, unlike mixed supplies, there is one primary element and the other elements are regarded as being
ancillary to the main element and only “for the better enjoyment” of the main element.
For example, when you buy a new washing machine, you usually receive an instruction book. Books and leaflets are normally zero-rated, so if sold separately, then the book would be zero-rated. However when sold with the washing machine, it is “for the better enjoyment” of the main element; i.e. to help you use the washing machine, so the whole supply is liable at the standard rate as a