VAT charge on construction costs

[Young]

Hi

Would appreciate your opinions:

I have managed to get planning permission to convert a shop into a flat and the garage (at the rear) into another flat. The area that was previously run as a shop has been used as a residence for a number of years (10+). Both flats will be completely self contained.

I now have a number of quotes to carry out the construction works and one of the contractors says that the works should be zero rated for VAT. With no VAT added to his quote, the total is within my budget. So, I have two questions:

1) Do you think that 0% or 5% VAT should be applied
2) If I go with this contractor and he charges no VAT, then HMRC state that VAT should have been charged, who is liable – me or the contractor?

I called the HMRC VAT helpline and they just said that we have to read VAT notice 708 and make a joint decision.

Thanks for any thoughts.

[Author]

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