HMRC have issued Information Sheet 7/17 which seeks to address the provision of zero rating for the construction and/or first grant of a new building, when constructed with elements of structures only partially demolished. This was deemed necessary as a result of a number of unfavourable Tribunal decisions.
HMRC’s concern, expressed in the publication, is that legislation would have been redundant as virtually any work that included partial demolition of an existing building could be treated as the construction of a building! I note, in the J3BS Tribunal decision, that the Member expressed some concern that that the decision might ‘allow a tax advantage’ in the circumstances described in the decision. The Chairman referred him to a previous decision, where HMRC were discouraged from policing the planning rules! I can understand HMRC’s concern, even if it is overstated, that a thread of case law might broaden the application of the legislation too far.
The Information Sheet re-states the basic principle that, for a construction project to be eligible for zero rating, any existing structure must be totally demolished. Any project which retains any portion of an existing structure, unless de minimis (see Boxmoor), will generally be excluded from zero rating.
The Information Sheet goes on to confirm that, where a project includes the retention of a façade, such retention must be explicitly included in the statutory planning consent or similar permission. It is not enough that it is implied in the documentation. Project Managers are therefore advised to ensure there is a specific provision within the SPC, so as to avoid an expensive VAT surprise.
This is the link to the Info Sheet: https://www.gov.uk/government/publications/vat-information-sheet-0717-construction-services-and-zero-rated-relief/vat-information-sheet-0717-construction-services-and-zero-rated-relief
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.