Builder Invoices and VAT Explained: What a Fair Bill Shows
Most invoice disputes are not about money — they are about an invoice that does not say enough for anyone to check it. This guide covers what a proper invoice must show, when building work is 20%, 5% or zero-rated for VAT, how labour-and-materials markup legitimately works, and the checklist to run before you transfer anything.
What a proper invoice must show
Most invoice disputes are not really about money — they are about an invoice that does not say enough for anyone to check it. A bill you can verify is a bill you can pay with confidence.
- Trading name and address, and a company number if it is a limited company.
- Invoice number and date, plus the date the work was completed.
- A description of the work that matches the quote — not "building work as agreed".
- Labour and materials shown separately where the quote was structured that way.
- Any variations listed individually, each with its own price and the date it was agreed.
- VAT details if VAT is charged — registration number, rate and amount.
- Payment terms and method, and what remains outstanding, including any retention.
VAT on building work: 20%, 5% and 0%
Most domestic work is standard-rated. The exceptions are narrow, genuinely valuable when they apply, and the contractor's responsibility to apply correctly.
| Rate | Typically applies to |
|---|---|
| 20% standard | The large majority of repairs, extensions, renovations and improvements to an existing home. |
| 5% reduced | Conversions that change the number of dwellings, and renovating a home empty for two years or more. |
| 0% zero | Construction of new-build dwellings, and certain works for disabled people. |
If you think your project qualifies for a reduced rate, raise it before the quote is finalised — it changes the price materially, and retro-fixing it after invoicing is awkward for everyone. HMRC's detailed rules are in VAT Notice 708. Neither you nor your builder should guess: where a project sits near the boundary, that is a question for an accountant.
Labour, materials and markup
A builder buying materials on your behalf will normally add a margin, and that is a legitimate part of how the trade works — it covers sourcing, delivery, handling, waste and the risk of getting it wrong. What matters is that you know which model you are on before the invoice arrives.
| Model | How it bills | Best for |
|---|---|---|
| Fixed price / supply and fit | One agreed figure covering labour, materials and margin. | Well-defined jobs where you want certainty. |
| Labour only | You buy and pay for materials directly; the trade charges for work. | Where you want control of specification and spend. |
| Cost plus | Actual costs, evidenced, plus an agreed percentage. | Open-ended or investigative work — needs trust and good records. |
Cost-plus without receipts is not cost-plus. If that is the model, agree up front how costs will be evidenced.
Variations: where the final bill usually grows
Almost every job that ends in an invoice argument had variations that were agreed verbally and never written down. The fix is unglamorous and takes two minutes.
- Agree every change in writing before it is done — a text or email is fine, it just has to exist.
- Each variation needs its own price and, where relevant, its effect on the completion date.
- Distinguish your changes (you asked for something different) from discovered conditions (something hidden turned up). Both can be chargeable; they are not the same conversation.
- Ask for a running total on longer jobs so the final invoice holds no surprises.
- Check variations on the invoice against your written trail before paying — see what to do when the price changes.
Invoice checklist before you pay
- The description matches the quote, and any difference is explained by a variation you agreed.
- Arithmetic checks out, including VAT and the deduction of any deposit or earlier stage payments.
- Retention has been deducted if you agreed one, and the release date is stated.
- Certificates and guarantees you paid for are attached or promised in writing.
- Any outstanding snags are listed with dates, so paying does not imply you accept them as complete.
- Payment goes to an account in the business's name.
Invoices and VAT FAQs
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