It appears that the VAT rate on labour costs for the renovation and repair of homes more than two years old (including work on the garden) will, with effect from 1 July 2015, once again 21% Since 1 March 2013, as part of measures to combat the economic crisis, a reduced VAT rate of 6% has applied to these activities. The sector is still lobbying hard to have the scheme extended (the expiry date of this temporary measure has already been postponed once), but there are few signs from The Hague that this request will be granted.
For the purposes of applying the VAT rate, the key factor is the date on which the supply was completed. Only if this is on or before 30 June 2015 may the reduced VAT rate be applied. However, if it is on or after 1 July 2015, then must on the an impressive performance the standard rate of 21% shall apply. Where partial invoices were issued prior to 1 July 2015, the VAT calculated on them at the reduced rate must be adjusted. The extent to which the additional VAT then due can be recovered from the customer depends on the agreements made.
Example
A landscaping company has agreed with a client to lay out a garden for €25,000 (excluding VAT). Of this amount, €10,000 is for the labour involved in the work. Work is due to start on 1 June 2015 and is expected to be completed on Friday 24 June 2015. At the start of the work, the client pays half of the quoted amount. The gardener invoices an amount of €14,375 for this, comprising €9,075 (€7,500 plus 21% VAT) and €5,300 (€5,000 plus 6% VAT).
Due to unforeseen circumstances, the garden will be completed on 5 July 2015. As a result, VAT must be paid on the total cost of the work at the standard VAT rate (21%). For the labour-related payment of €10,000, this amounts to €2,100 instead of €600.
The VAT calculated on the amount included in the advance payment for labour must be recalculated. In July, the gardener must pay the difference between 21% * €5,000 = €1,050 and the €300 already paid.
Of course, an agreed-upon project may be divided into separate sub-assignments. In that case, the above applies to each individual sub-assignment. Whether a sub-assignment is in fact one that can be completed separately depends on the specific facts and circumstances. It is to be expected that the Tax and Customs Administration will be on the lookout for work completed around 1 July 2015. Not in the context of regular periodic tax returns, but, for example, during an audit.
In this context, it is important to note the obligation under VAT legislation to issue the invoice no later than the 15th day following the end of the month in which the service was provided. Jobs completed before 1 July 2015 must therefore result in an invoice being issued to the customer by 15 July 2015 at the latest.
The reduced VAT rate continues to apply to labour involved in the following work on residential properties more than two years old:
– painting and plastering;
– installing insulation designed to save energy.
The cleaning of homes (interiors only) also remains subject to the reduced VAT rate, regardless of the age of the property.