HMRC’s interpretation too restrictive in zero rated construction case

The First-tier tribunal in the case of the Trustees of the Eaton Mews Trust (TC 01943, decided on 20 April 2012) has allowed a claim for zero rating in relation to a new build even though the retention of some of the original walls was proposed in the planning application itself.

The planning application had proposed that the party walls on either side and the rear wall of an existing dwelling in a terrace should remain, with the rest of the building, which was in a conservation area, then demolished and a new dwelling built in its place. 

The planning and conservation consents followed the application and required the work done to follow that proposal.  

HMRC argued that a new dwelling was not being built and the construction services did not therefore qualify for zero rating.  They contended that for zero rating to apply, the retention of a façade had to be as a result of the planning consent, not simply requested as part of the planning application.  

The VAT Tribunal disagreed with HMRC and allowed the appeal and zero rating on the basis that if there was a positive requirement for retention of the relevant façade, whatever the reason for its imposition, the relevant statutory condition had been met.

Businesses should review past claims for zero rating of residential buildings which have been denied where walls have been retained as there may be reclaims available.

For further information please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.