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

What is the two-thirds rule?

Where the Value-Added Tax (VAT) exclusive cost of goods used in the provision of a service exceeds two-thirds of the total VAT exclusive price you charge to your customer then the full price is taxable at the rate of the goods.

Where the VAT exclusive cost of goods used in the provision of a service does not exceed two-thirds of the total VAT exclusive price then the full price is taxable as a supply of services. This is known as the two-thirds rule.

The following services are not subject to 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.