Zero-rating the construction of a new building

By Tolley

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

  • Zero-rating the construction of a new building
  • Conditions to zero rate the construction
  • HMRC VAT Information Sheet 07/17
  • Treating relevant residential purpose buildings (RRP) as dwellings
  • Extending and enlarging an existing building
  • Relevant charitable purposes
  • Services in the course of construction
  • Services that cannot be zero-rated
  • Mixed site developments

This document covers this in detail, together with the demolition and party walls; HMRC’s information sheet; evidence; constructions incorporating existing buildings; treating relevant residential purpose buildings as dwellings; sub-contractors; extending existing buildings; relevant charitable purpose buildings; services that can and cannot be zero rated; and mixed site developments.


This guidance note provides an overview of the current VAT rules regarding when the construction of a new building can be zero-rated.

HMRC Notice 708 

This should be read in conjunction with the Definition of dwelling, relevant residential and relevant charitable purpose guidance note.

Conditions to zero rate the construction

A business can zero rate the construction of the following buildings:

  • designed as a dwelling
  • will be used solely for a relevant residential purpose
  • will be used solely for a relevant charitable purpose

VATA 1994, Sch 8, Group 5, item 2

Basic conditions

The following conditions must be satisfied before the construction can be zero-rated:

  • a zero-rated building will be constructed
  • the services provided are made “in the course of construction” of that building (VCONST02500)
  • the person constructing holds a valid certificate where applicable
  • the services are not specifically excluded from the zero-rating provisions


It should be noted that the word ‘building’ has not been defined in the legislation. Therefore the word should be given its natural meaning which is that a building should be viewed as a structure that is fixed to the ground that at a minimum consists of walls (or an alternative, such as an arrangement of columns) supporting a roof that encloses a volume of space.


The structure must also have sufficient scale for human occupation and be made of durable materials such as brick, timber, etc.

Typical examples of buildings are houses, residential care homes and village halls. However, structures that do not exhibit the characteristics of a building, such

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