Value Added Tax

Construction ― zero-rating of construction services

Produced by Tolley
  • 06 May 2022 08:01

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Construction ― zero-rating of construction services
  • When can construction services for new buildings be zero-rated?
  • What is a ‘building’ for VAT purposes?
  • When are services supplied ‘in the course of construction’?
  • What is work on the building itself?
  • When is a building completed?
  • What kinds of works are ‘closely connected’ to the construction of a building?
  • What kinds of works are not ‘closely connected’ to the construction of a building?
  • What kinds of supplies are specifically excluded from the zero-rating for construction services?
  • Architect and other professional fees
  • More...

Construction ― zero-rating of construction services

This guidance note looks at the zero-rating of construction services for certain new buildings.

For an overview of the liability of construction services more broadly, see the Overview ― construction, conversion and renovation guidance note.

Detailed commentary on the legislation and case law can be found in De Voil Indirect Tax Service V4.238.

When can construction services for new buildings be zero-rated?

Businesses can zero-rate supplies ‘in the course of construction’ of the following kinds of new buildings:

  1. buildings designed as dwellings (see definition in the Buildings and construction ― definition of dwelling guidance note)

  2. buildings which will be used solely for a relevant residential purpose (see definition in the Buildings and construction ― definition of relevant residential purpose (RRP) guidance note)

  3. buildings which will be used solely for a relevant charitable purpose (see definition in the Buildings and construction ― definition of a relevant charitable purpose (RCP) guidance note)

VATA 1994, Sch 8, Group 5, Item 2

In some circumstances, it will be necessary to hold a zero-rating certificate in order to be entitled to zero-rate the supply. There are also a number of types of service which are specifically excluded from the zero-rating for construction services.

This is explored further in this guidance note.

What is a ‘building’ for VAT purposes?

The word ‘building’ has not been defined in the legislation. HMRC’s view is that in the absence of a legal definition, it should be given its natural meaning, ie:

  1. it is a structure

  2. it is fixed to the ground

  3. at

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