VAT: construction services and zero-rated relief

HMRC has published VAT Information Sheet 07/17 to explain its policy on how VAT is applied to the construction of buildings that keep or make use of parts of a building that previously stood on, or were adjacent to, the site where the works of construction are taking place. This policy affects the liability of the first grant of a major interest by the person who is constructing the building.

It explains the circumstances in which the services of construction may be zero-rated when a building is either:

  • designed as a dwelling (or a number of dwellings)
  • intended for use solely for a relevant residential or a relevant charitable purpose.

The information sheet explains what it means for a building to be demolished to ground level for VAT purposes and HMRC’s view of the tem “façade.” It also confirms that party walls may be ignored if they are walls that are shared with adjoining buildings such as in semi-detached or terraced houses.

In addition, it sets out the evidence needed to confirm that a development qualifies for zero-rated relief when a façade is being retained as a condition or requirement of statutory planning consent or when a building is being constructed that incorporates existing buildings.

The publication of this information sheet follows three Upper Tribunal (UT) judgments, Astral Construction Limited (‘Astral’) (2015) UKUT 0021, Boxmoor Construction Limited (‘Boxmoor’) (2016) UKUT 0091 and J3 Building Solutions Limited (‘J3BS’) (2017) UKUT 0253.