Whilst there have been no particular sea changes in the VAT legislation or policy announcements by HMRC other than perhaps the changes to the Flat Rate Scheme announced last year, one area of interest seems to have come to fore over the past year. This is the scrutiny of the 5% reduced rate construction work.
The reduced rate is provided for in Schedule 7A VATA 1994, Group 6 covers Residential Conversions and Group 7 is for Residential Renovations and Alterations – the 2 year empty home relief. The relief is more complex than it first appears because HMRC’s public notice on the subject does not give much in the way of detail.
This article focusses on a couple of the areas which we have come across recently. Both Groups apply the reduced rate to “qualifying services” related to the works and the point of interest is the extent of the reduced rating. The reduced rate applies to works carried out by a builder to the fabric of the building or premises or in connection with the means of providing certain facilities to the building and within the “immediate site”. The legislation does not define what fabric is but it is generally regarded as being the walls, roof, internal surfaces, doors, windows, plumbing and so on. The works do not need to be structural, and the installation of any goods into the building do not qualify for relief unless they fit into the accepted definition of “building materials”.
So, if an empty house is being renovated, most of the works can be reduced rated, but the vexed question is can those same services of repair and maintenance still have the relief in a conversion? Conversion works may amount to very little if a single household dwelling is converted to a multi-occupancy dwelling but what about works to the roof, are they a necessary part of the conversion? It is point which HMRC may raise on conversion works of larger, more expensive properties.
Moving on to the question of works within the immediate site, the law allows the reduced in connection with the means of providing water, power, heat, access, drainage , security or waste disposal. Taking the case of access, it is clear that a new drive to a garage or parking area should qualify but what about hard landscaping around a larger building which has several minor entrances into it?
Omnis has dealt with these and other issues in respect of reduced rated projects and finally there is one other important point of detail to consider – planning permission. The law removes the 5% relief if any statutory planning consent need for the works has not been granted. There has been a Lower-tier Tribunal case concerning a disputed DIY claim where the planning permission allowed extensions and alterations to a building but the building was actually rebuilt. The planning authority seemingly did not object to the change to the plans; however the Tribunal found that the works had not been lawful and dismissed the appeal. The Tribunal commented that even if retrospective permission had been granted, it would not have been enough to render the works lawful at the time of the claim.
As with most aspects of VAT, the devil is always in the detail!