HMRC has changed its criteria for deciding whether construction services should be zero-rated. Below is an overview of the new rules. As with any complex VAT matters, it’s always worth speaking to us to make sure you remain compliant and avoid unnecessary fines.
Zero-rated construction services
The construction of some new residential and charity buildings can be zero-rated if they meet certain criteria. To qualify, properties must be designed as “dwellings” or intended to only be used for a relevant residential or charitable purpose.
Previous buildings on the same site must be demolished to the ground, unless there is a legal requirement to keep the facade of an existing property.
Keeping any other parts of the old property (however small) means that the zero-rate cannot apply and, in most cases, the work will be liable to VAT at 20% for replacing, altering, extending or enlarging an existing property. (In some cases, the 5% rate may be available – for example, if the work qualifies as conversion of a commercial property or renovation of an existing dwelling.)
The same criteria that apply for zero-rated construction services must be met in order for the sale of the property by a developer to be zero-rated, or to qualify for a VAT refund under the DIY scheme for a private individual.
HMRC response to cases
VAT Information Sheet 07/17: Construction services and zero-rated relief discusses three relevant cases.
HMRC accepted this ruling.
However, HMRC’s policy seems to be subjective and the VAT Information Sheet 7/17 doesn’t comment on how that particular decision could apply to different types of development.
HMRC’s responses to these examples deal with specific situations where portions of an existing dwelling are retained, and HMRC “now accepts that a very minor part of a building may be retained above ground level if it’s small enough to be ignored as ‘de-minimis’.” As a guide, retaining brickwork under a ground floor bay window was NOT held to be ‘de-minimis.’ (Unfortunately, there is no definition of the term ‘de-minimis’ in this context!)
HMRC also discussed the meaning of the word ‘facade’, confirming that, in its view, not all external walls can be treated as facades.
Where does this leave builders and developers?
As is often the case with HMRC’s responses to tribunal or higher court decisions, there are more questions than answers and these may lead to some interesting tribunal cases over the next few years of testing HMRC’s revised policies.
In the meantime, if you believe you may have paid too much VAT on construction work, have not claimed VAT relating to a potentially zero-rated sale, or have had a DIY claim dismissed that could be affected by these changes in policy, it’s time to get the claims process started now! Call us on 020 8530 0720 or email email@example.com for more information or to speak to a member of the VAT Team.
This has been adapted from Marie Stein’s much more comprehensive article on AccountingWeb.
At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.
Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.
Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.
Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.
Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.
Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.
With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.
Voted as EXCELLENT - 9.9 out of 10 based on 164 reviews
We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.
We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.
In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.
Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!
At Nordens, we're committed to keeping our clients updated on all things business strategy and news. Each week we update our newsletter subscribers on what really matters in the big bad world of business. That way, you can stay one step ahead!
In celebration of our 18th birthday, we’ve launched our Refer-a-Friend scheme, allowing you to receive a thank you gift from us of up to £1,000 for successfully introducing a new client.
Our team of experts will be in touch to find the very best time to hold a free, no strings attached, one-hour consultation.