Hi all you lovely people!
Just had a call from my client and I must admit I am looking for your help and advice in this as the research that I have done so far has made me think it is quite a specialised area.
My client is currently halfway through a large new build of student accommodation which has been invoiced at standard rated VAT. The building contractor has now stated that the project is zero rated because it is a residential new build and has sent my client an email and quoted
"As per the legislation and rules set out in the Value Added Tax Act 1994, specifically schedule 8 group 5 which are summarised in HMRC VAT Notice 708;
Construction of New Build Residential Dwellings – ZERO RATE"
and requests that all future stages should be zero rated.
I do not understand how the VAT rate can be changed during a project and have advised my client that I still think that VAT should be charged and he has told his customer this. The customer is currently experiencing cash flow problems and my client thinks it is for this reason that he is now refusing to pay VAT on my clients costs.
Your expertise would be much appreciated!!
Thanks
Lugalugs
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Replies (10)
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In such cases I would usually want something to back up the zero rate aspect of the build. Typically a report from a VAT consultant. Give the VAT helpline a call for more advice. One of the few helplines at HMRC that I have some confidence in.
I tried to call the VAT helpline at HMRC last week. I gave up after waiting 45 mins for the phone to be answered. I called a local self-employed VAT consultant instead (which cost me £30, but you can't afford to make mistakes with VAT).
Did you read the VAT notice referenced? Student accommodation is a relevant residential purpose and on the face of it all work relating to the construction of it should be zero-rated. You don't actually say why you think it shouldn't, other than saying you think the rate of VAT should be the same throughout the project.
Of course that's true but the customer is asserting the wrong rate has been used and based on the information you've given so far they are correct.
Did you read the VAT notice referenced? Student accommodation is a relevant residential purpose and on the face of it all work relating to the construction of it should be zero-rated. You don't actually say why you think it shouldn't, other than saying you think the rate of VAT should be the same throughout the project.
Of course that's true but the customer is asserting the wrong rate has been used and based on the information you've given so far they are correct.
That is not correct. See paragraph 17.4 of the VAT Notice and note 12(a) to Group 5 of Schedule 8, VATA 1994.
Quite right, I misread the question and thought the client was the main contractor and the main contractor was the customer.
Paragraph 17.4 of VAT Notice 708 refers. Main contractor can zero-rate their supply to the end customer, but contractors supplying the main contractor must standard-rate their supply.
It is a cashflow issue for the main contractor, but they should have realised that at the outset. If they are in a repayment situation they can improve their position by making monthly returns.
I have read quite a lot of info and student accomm does not always qualify as residential build as they are not living there for the whole year. This was why I initially thought the standard rated was in place.
I have just re-read your OP. Does this "student accommodation" comprise a number of separate buildings each of which is designed as a dwelling?
This is a tricky one:
- zero rating only applies to the supply made to the operator of the student accommodation, unless it also qualifies as dwellings. You will need to check out HMRC Information Sheet 2/14 on this issue.
- if the project is RRP (not dwellings) then sub-contractors cannot zero rate.
- if the project is correctly zero rated, then previous invoices will need to be corrected.
- zero rating also requires a formal certificate for a RRP development, but not for dwellings.
And, if VAT is incorrectly charged, it cannot be claimed back by the customer.
So, you may need to pay for some more detailed advice, including a review of the project to determine whether it is RRP and/or dwellings,
Thanks for all you advice so far. I will go back to my client and ask more questions and do more digging.