Our client owns about 4.5 acres of land and has been granted planning to build a number of wooden lodges and create a holiday park.
Am I right in thinking that the construction of these holiday homes will be zero rated? It is the intention of my client to sell some of the lodges and possibly let some of them. Does this affect the VAT treatment of construction?
I believe the planning allows people to reside at the park throughout the whole year - I think this has a bearing on the VAT treatment.
Also, does it matter if sold freehold or leasehold?
I note this previous post would seem to support my thinking https://www.accountingweb.co.uk/anyanswers/log-cabin-vat
Your thoughts welcome.
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Provided...
... the construction services are supplied in the course of construction of a building designed as a dwelling, those services, together with building materials will be eligible for zero-rating (see VAT Notice 708).
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You asked about zero rating the construction of these dwellings. If the builder follows and conforms to sections 3 and 14 of notice 708 he can zero rate the work.
What the owner does with the dwellings will have no impact on the construction element.
see this post I made a couple of weeks ago as well.
https://www.accountingweb.co.uk/anyanswers/question/vat-residential-development
the key is whether or not the lodges conform to the 708 notice.
I would imagine that someone will come along and give you a conclusive answer to this, vat is no tmy favourite subject.
Conflicting advice?
You (George) say that the sale might be zero-rated, depending on whether or not the lodges fall to be treated as dwellings. If that test is met, then why would the construction costs not also be zero-rated?
Provided the lodges are capable of being lived in, albeit for a short period, ie with all amenities, own entrance etc as one would normally find in a dwelling, zero-rating ought to apply.
Apologies...
... my mind seduced me into some faulty thinking when I first posted. I've edited it so there's no bad advice in the thread.
thanks for comments
So we all agree it is a zero rated supply whether or not the client is going to sell or rent these lodges? I read somewhere that where holiday homes are not available throughout the whole year (which happens in some holiday parks) or part of time-share then it is standard rated rather than zero rated. any comments?
No apologies required, George
It's not a black-and-white area, so difficult to give definitive advice without full knowledge of all of the facts.
Where an apology would be required is where the respondent has given what is quite clearly technically incorrect and, as a result, misleading advice. That isn't the case here.
Holoday homes
The point regarding holiday homes only applies in respect of item 1 of group 5 (the first grant of a major interest by the person constructing the building). This could mean that some of your client's sales may be standard-rated. See paragraph 4.4 of Notice 708.
Client self building ?
Will the client be either partially self building or employing a builder or are log cabins to be purchased as a packaged solution?What is clients main business?
Similar scenario?
We took specialist advice for a client doing a barn conversion into self catering holiday cottages and were told that they weren't standard rated because each "unit" was a separate "dwelling" capable of operating as a standalone "home", with it's own front door, own kitchen & toilets, etc. Apparently that means it doesn't fall under the "holiday" rules making it standard rated for VAT. In our case, the planning permission was specific that the "homes" were only for short term holiday lets and couldn't be lived in as a person's home. I suppose log cabins may be different if they're set within a "holiday park" with other amenities such as a pool or entertainment or whatever but I think if they're just stand alone self-catering log cabins and there aren't substantive communal facilities then you're probably OK to avoid standard rating.
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Hi Ken, just to pick you up on a point you made. you mention that the homes were only for short term holiday lets which meant that they couldn't be lived in as a persons home. Is that not in conflict with your conclusion?
I mean you start by saying that the homes were capable of separate occupation which is fine and you can see the logic in zero rating in that case, but then you say that planning restricts their use to that of holiday accommodation.
Yes that's right
Hi Ken, just to pick you up on a point you made. you mention that the homes were only for short term holiday lets which meant that they couldn't be lived in as a persons home. Is that not in conflict with your conclusion? I mean you start by saying that the homes were capable of separate occupation which is fine and you can see the logic in zero rating in that case, but then you say that planning restricts their use to that of holiday accommodation.
But does a planning restriction stop it from being a home? It looks like a dwelling, has all the usual facilities of a dwelling, and can be lived in as a dwelling (except not for long due to planning!). Does planning permission stop it from being a dwelling for VAT? According to our VAT specialist, no it doesn't. Apparently for VAT purposes, it's a dwelling. The point could become irrelevant anyway as there's a planning application which looks likely to be agreed, changing the use from holiday home to permanent dwelling, which kinds of helps prove the point that they were built as "homes" rather than "holiday accommodation". Our specialist still regards "holiday accommodation" as the likes of hotels, guest houses, cabins/caravans on a holiday site with facilities, etc and his report did seem to have quite a lot of statutory reference and case law to support his view.
Picking up blok's point...
... the definition of "holiday accommodation" of itself isn't particularly relevant to the OPs point, because we're primarily talking about the zero-rating of the construction costs of a dwelling and, secondarily, the zero-rating of the first grant of a major interest in a dwelling under Items 2 and 1 of Group 5 of Schedule 8 VATA 1994.
The definition of "holiday accommodation" is only relevant to whether the grant of a right to occupy accommodation is exempt under general principles or is standard-rated because it is a grant to occupy "holiday accommodation" per Item 1(e) of Group 1 of Schedule 9.
What is relevant to the first grant zero-rating provision is note 13 to Group 5 of Schedule 8, which doesn't actually use the term "holiday accommodation". Paraphrasing slighlty, what it actually says is that a dwelling is excluded from zero-rating (and so standard-rated) if "the grantee [of the interest in question] is not entitled to reside in the building throughout the year" or such residence is "prevented by the terms of a covenant, statutory planning consent or similar permission".
I think Ken's client may be letting the premises in question, from what he goes on to say about changing the planning permission, which would be exempt if it's not "holiday accommodation". In that case, I do hope the advice he has received advised against advertising the homes as holiday accommodation.