3cpd. VAT in Construction Grant Thornton UK LLP. All rights reserved.

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Lucas Booth
6 years ago
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1 3cpd VAT in Construction

5% Supplies (Reduced Rate) Planning Consent Pitfalls Annexes

2 Zero Rated Supplies dwellings relevant residential purpose building (RRP) relevant charitable purpose building (RCP) protected buildings 5% Supplies (Reduced Rate) Planning Consent Pitfalls Annexes Development Agreements CONTENT Supplies in the course of construction Miscellaneous

3 Zero-rated supplies First grant by the person constructing of a major interest in building designed as a dwelling, or solely for use as a relevant residential purpose ("RRM") or relevant charitable purpose ("RCP") building; Supply in the course of construction of a building designed as a dwelling, RRP or RCP building (excluding the services of an architect, surveyor etc); Grant of a major interest in a building not designed as a dwelling (or not used as a dwelling for the last ten years) but which has been converted into a dwelling;

4 Zero-rated supplies - cont. Supply to a housing association in the course of converting a nonresidential building (or part of a building) into dwellings or RRP building; The supply of materials to a person to whom the supplier is supplying services which include the incorporation of the materials into the building (or site) in question First grant of a major interest by a person "substantially reconstructing" a protected building or in any part of a protected building or its site; Supply in the course of construction of any civil engineering work necessary for the development of a permanent park for residential caravans

5 Zero-rated supplies First grant of a major interest Grant of a first freehold interest (fee simple in Scotland) in a new dwelling etc. Grant of a first leasehold interest of 21 years or more in a new dwelling etc.

6 Zero-rated supplies What is a dwelling? Each dwelling or number of dwellings must satisfy the following conditions: The dwelling consists of self contained living accommodation; There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling; The separate use, or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision; and Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent. Garages can qualify if constructed at the same time as the dwelling and it is intended to be occupied with the dwelling; Separate use and disposal test has been the subject of much litigation;

7 RRP and RCP buildings what is a RRP building? A building used as - Home or other institution providing residential accommodation for children; Home or other institution providing residential accommodation with personal care for persons in need of care by means of old age, disablement, past/present dependence on alcohol/drugs or past/present mental disorder; Ahospice;

8 RRP and RCP buildings what is a RRP building? Residential accommodation for students or school pupils (may qualify as a dwelling if en-suite bathrooms are incorporated into the rooms); A monastery, nunnery/convent or similar establishment; Residential accommodation for members of any of the armed forces; An institution which is the sole or main residence of at least 90% of its residents; Excludes use as a hospital, prison or similar institution or hotel, inn or similar establishment;

9 RRP and RCP buildings what is a RCP building? Use by a charity in either or both of the following ways: Otherwise than in the course or furtherance of a business; As a village hall or similarly in providing social or recreational facilities for a local community. Otherwise than in the course or furtherance of a business is where the building is used 95% or more for non business purposes. Excludes the use by a charity as its office

10 RRP and RCP buildings what is a RCP building? - cont. Village hall a building run essentially on a voluntary basis for the benefit of a local community. The community must be the final consumer of the services. Typical qualifying buildings include scout or guide huts (if used by the wider community), sports pavilions, church halls, community centres and community sports centres. Usually excluded community swimming pools, community theatres, membership clubs charging more than a notional membership fee, community amateur sports clubs.

11 Protected Buildings what is a "substantial reconstruction of a protected building"? Protected building a listed building defined in the Planning (Listed Buildings and conservation Areas) Act 1990 or the Scottish/Northern Irish equivalent legislation; Scheduled monument as defined in the Ancient Monuments and Archaeological Areas Act 1979 or the equivalent Northern Irish legislation; Must be used as a dwelling, RRP or RCP building;

12 Protected Buildings what is a "substantial reconstruction of a protected building"? - cont. Substantial reconstruction for buildings where planning consent was applied for prior to 21 March 2012, at least 3/5 of the work relates to approved alterations or 10% of the cost of reconstruction was completed before 21 March 2012 and 3/5 of the work would have related to approved alterations. For planning consents applied for after 21 March 2012 and work started after 1 October 2012, the reconstructed building incorporates no more of the original building before reconstruction began than the external walls together with other external features of architectural or historic interest. The rules for consent applied for before 21 March 2012 only apply until 30 th September 2015 when the rule regarding retention of external walls etc. will become the sole test.

13 Reduced Rate (5%) Supplies The reduced rate can be applied to the following: The supplies of services of installing energy saving materials in residential accommodation and the supplies of energy saving materials by that person; The supply of services by a person in the course of a qualifying conversion and of the supplies of associated materials by that person; The supply of services by a person in the course of renovation or alteration of qualifying residential premises and the supplies of associated materials by that person; Installation of heating equipment or security goods or connection of a gas supply for those aged over 60 or who are in receipt of state funded benefits where the installation is grant funded; Installation of mobility aids for the over 60's.

14 Reduced Rate (5%) Supplies what are energy saving materials? Insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings; Draught stripping for windows and doors; Central heating system controls (including thermostatic valves); Hot water system controls; Solar panels; Boilers designed to be fuelled solely by wood, straw or similar vegetal matter; Wind turbines; Ground or air source heat pumps; Micro combined heat and power units.

Reduced Rate (5%) Supplies what is a qualifying conversion? A building which has changed number of dwellings (e.g. one home into a number of apartments or vice versa) A house in multiple occupation conversion (i.

15 Reduced Rate (5%) Supplies what is a qualifying conversion? A building which has changed number of dwellings (e.g. one home into a number of apartments or vice versa) A house in multiple occupation conversion (i.e. a house that was not previously for multiple occupancy); A special residential conversion (i.e. a conversion of building or more than one building where the building was not previously used as a RRP building but the intended use after the conversion is as a RRP building. Also if the intended use is as an institution, the conversion must be intended to form the entirety of that institution).

Reduced Rate (5%) Supplies what are qualifying residential premises?

is to the person who will live in the property and the relevant alterations

during the two years that the building was empty and the building was

16 Reduced Rate (5%) Supplies what are qualifying residential premises? A residential property that has been empty for 2 years or more; or The supply is to the person who will live in the property and the relevant alterations are carried out within 1 year and no alterations or work was carried out during the two years that the building was empty and the building was acquired before the property was re-occupied; A RRP building has to be used solely for that purpose.

17 Planning Pitfalls Restricted use or occupancy By time of occupation By the type of person who can occupy Separate disposal of the building Any restriction of disposal is a problem Much litigation Original use and final use differ Back dated amendments to consent not long enough New planning laws for conversions of office and agricultural buildings to dwellings may mean criteria for "being approved" fails in future

Annexes The construction of a "charitable"

18 Annexes The construction of a "charitable" annexe can be zero-rated provided that: The annexe has its own entrance; The annexe is capable of functioning in isolation from any other building; The annexe will be used by a charity for non-business purposes.

19 Development Agreements Very popular at the moment given the shortage of land for housing under local development plans; Used to be easy for landowner to opt to tax; Developers now prefer no option to tax because of higher Stamp Duty Land Tax where land owned by "non-natural person"; Will often involve complex tax planning e.g. entrepreneurs relief; May be services rather than specifically land related and will, therefore be subject to VAT at 20%.

20 Supplies in the course of construction of a new dwelling, RRP or RCP Most goods and services can be zero-rated. However, a number are standard-rated and some are blocked for recovering VAT on the cost. The blocked items are: Carpets; "White goods" e.g. cookers, fridges, dishwashers, washing machines etc.; Pre fabricated or fitted furniture (except kitchen cupboards and wardrobes constructed from alcoves); 'Hard' landscaping, The services of architects, surveyors, project managers etc. are always standard-rated but the VAT is recoverable. Design and build contracts are often entered into where input tax recovery by the building owner in restricted (e.g. bark, insurance company, charity etc.).

Miscellaneous S106 agreements VAT recovery linked

very conclusive on "ordinarily installed" issue

large construction firms choosing to ignore.

or a dwelling; Sub-contractors services can only

21 Miscellaneous S106 agreements VAT recovery linked to nature of development; Taylor Wimpey case not very conclusive on "ordinarily installed" issue for white goods; New RCB on student accommodation large construction firms choosing to ignore. Student accommodation can be zero-rated as a RRP or a dwelling; Sub-contractors services can only be zero or reduced-rated for dwellings, not for RRP or RCP buildings

The amount of compensation payable is based on a combination of:

The amount of compensation payable is based on a combination of: Tenant s Right To Compensation For Improvements The Housing (Scotland) Act 2001 introduced the tenant s Right to Compensation for Improvements from 30 September 2002. The legal reference is the Scottish