Settled before the first invoice

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Why a builder leads with a VAT rate

Clients planning a rebuild prepare carefully for the things they expect to be difficult: the permit, the programme, the cost of materials, the disruption. Almost nobody prepares for the item that moves most money, which is the rate at which the works are invoiced. Demolition followed by reconstruction of a dwelling can fall under the reduced rate of six per cent instead of the standard twenty-one. On a project of a few hundred thousand euros, those fifteen points dwarf every negotiation about specification that a client is likely to have. Since 1 January 2024 the regime applying across the country is permanent, which removed the old uncertainty about temporary measures, but it is conditional: the reconstructed dwelling must be the client's sole and own dwelling, its habitable surface must not exceed two hundred square metres, the client must be domiciled there, and the position must hold for five years. Since 1 January 2025 it also reaches reconstruction followed by long-term letting to a private individual who makes it their main residence.

What causes the losses is not those conditions, which most clients either meet or do not. It is the procedure. The reduced rate is available only where a declaration has been lodged before the value added tax becomes chargeable. A project that starts, gets invoiced at the standard rate on the assumption that the paperwork can follow, and then tries to put it right, does not recover the rate on what has already been invoiced. Re-issuing invoices does not fix it. This is why the subject belongs in the first conversation and on the quotation, and why this company does not invoice at a reduced rate unless it holds the declaration — a rule that protects the client as much as the builder, since the builder is in principle answerable for applying the rate correctly.

Two further points deserve stating because they are regularly missed. The first is that a different reduced-rate regime exists for renovation of a dwelling at least ten years old, with different conditions, and a conclusion under one regime establishes nothing under the other; where a project sits somewhere between a deep renovation and a reconstruction, that is precisely the case to put to an adviser early. The second is that the five years is a continuing obligation rather than a single check, and ceasing to satisfy the conditions within it can trigger repayment of the benefit — by the client, not the contractor. None of this is tax advice, which is reserved to professionals registered with the ITAA. What a builder can usefully do is identify the questions, state them accurately, and make sure the timing does not quietly destroy the answer.