VAT reclaims possible on constructions costs

HMRC have always insisted that an existing building must be razed to the ground to obtain residential construction costs at the zero rate of VAT or where one wall or a facade/corner remains the retention must be as a result of planning requirements.

The Upper Tribunal (UT) has changed all that in its decision in the case of Astral Construction Ltd v HMRC [2015] UKUT 0021 (TCC).

A nursing home was created out of an existing church. The church was retained and a much larger residential nursing home structure was built around the church.

HMRC contended that the fact that the old church remained meant that the work could not qualify for zero rating.

The UT, rejecting all of HMRC’s contentions, agreed with Astral and the First-tier Tribunal that the church building although it had not been demolished, had been effectively destroyed by the new construction. The construction works were therefore properly zero rated.

This case is a definite shift towards zero rating and will entitle claims of VAT over the past four years.

Vaughn Chown, Head of VAT at Gabelle comments:

The Astral case opens the doors for VAT claims in respect of any type of property construction where the completed residential property bears little resemblance to the previous building. Claims should be made now going back four years. While it is not known if HMRC will appeal the decision, claims submitted now will protect the past position.

For further information on the VAT reclaims on constructions costs, please contact the TaxDesk on and ask for Vaughn Chown or Kevin Hall.