Services taxable at the rate of the goods (the two-thirds rule)

What is the two-thirds rule?

Goods are often supplied in the provision of a service, for example, parts in a washing machine repair job.

There are certain rules in relation to how this transaction is taxed for Value-Added Tax (VAT) purposes.

Note

All figures and costs are VAT exclusive.

If the cost of the goods used in carrying out the work exceeds two-thirds of the total price:

  • the rate which applies to the goods then applies to the entire transaction.

If the costs of the goods used in carrying out the work does not exceed two-thirds of the total price:

  • the rate which applies to the service then applies to the entire transaction.

This is known as the two-thirds rule.

  • Repair and maintenance of motor vehicles and agricultural machinery.
  • Construction services where principal contractors account for VAT on the receipt of construction services from sub-contractors.
  • Construction services between two connected parties.