Why does zero-rating matter?

If the zero-rating does not apply, the transaction will usually be exempt, so that the developer cannot recover VAT (ie input tax) on costs, such as on fees and perhaps on the acquisition of the site. For more details, see Practice Note: When can a person recover VAT?

Construction services supplied in the course of construction of the dwelling will generally have been zero-rated anyway, see Practice Note: VAT treatment of building work. Where this is the case, a developer who did not incur VAT on the site acquisition might take the view that zero-rating of sales and leases is desirable, but not essential.

Why might zero-rating not apply?

The most common reasons are that:

1. •

   a lease is too short to qualify

2. •

   the works do not count as construction, or

3. •

   there are planning restrictions on the use of the dwelling

The conditions for zero-rating

The zero-rating covers:

‘The