Policy paper

Revenue and Customs Brief 14 (2014): withdrawal of concessions for student accommodation and dining halls

Published 7 April 2014

Purpose of this brief

This brief announces revised transitional rules following the announcement by HM Revenue and Customs (HMRC) that concessions affecting:

• the construction of new student accommodation
• new dining halls and kitchens for students and school pupils

will be withdrawn from 1 April 2015.

Who should read this?

This brief should read by those engaged in the construction or provision of new student accommodation which will be supplied to Higher Education Institutes (HEIs), and of new dining rooms and kitchens constructed at the same time as new residential accommodation for students and school pupils.

Background

The construction of a building intended for use solely for a relevant residential purpose, and the first grant of a major interest in such a building by the person constructing it, are zero-rated.

As one of the conditions for zero-rating the user of the building must, before the supply is made, provide a certificate to the builder or developer as evidence that the building is intended to be used solely (at least 95%) for a relevant residential purpose.

In a Technical Note (PDF 241K) published on 31 January 2014, HMRC announced the withdrawal from 1 April 2015 of 2 concessions which allow:

• HEIs to ignore vacation use when determining how new student accommodation is intended to be used
• dining rooms and kitchens to be zero-rated as residential accommodation for students and school pupils if they were used “predominantly” by the living-in students

Until 1 April 2015, those affected can choose either to use the concessions or rely on the statutory position.

Transitional rules

Following consultation with those affected, HMRC has widened the transitional rules which determine which student accommodation buildings that are not complete as at 1 April 2015 can rely on the concession. The revised rules are set out below.

Certificates which rely on the concession to meet the “solely” for a relevant residential purpose test (as student accommodation) will still be valid where:

• for construction services, the first supply is made before 1 April 2015 and relates to a meaningful start to the construction of the building by that date, and the works are expected to progress to completion without interruption (demolition or site clearance works will only be accepted where construction starts immediately afterwards)
• for the first grant of a major interest in new student accommodation, either:
  • a meaningful deposit (for example, on exchange of contracts) has been paid to the vendor (or their solicitor) before 1 April 2015 (options to purchase will not be accepted irrespective of intention)
  • an Agreement for Lease (or purchase) has been signed with the vendor or landlord before 1 April 2015 and a meaningful start to the construction of the building has taken place by that date, and the works are expected to progress to completion without interruption (demolition or site clearance works will only be accepted where construction starts immediately afterwards)

For single developments of more than one block of student accommodation constructed in phases, the above rules apply but:

• ‘meaningful start to the construction of the building’ means ‘meaningful start to the construction of the first building’
• ‘expected to progress to completion without interruption’ means ‘expected to progress to completion of all phases without interruption’

Other points

‘Continued reliance on the concession’ - There are no changes to the rules set out in the technical note concerning the continued use of the concession for the purposes of the change in use charge. But in order to aid clarity, if you rely on the concession before 1 April 2015 then the concession will continue to apply until the building is no longer susceptible for consideration for a change in use charge (typically 10 years from completion).

‘Late Certificates’ - If you can demonstrate to your supplier that at the time he made his supply, you had the intention that the building will be used in the way certified and that all the other conditions (including transitional rules) for zero-rating were met, then a certificate can be issued later than 1 April 2015 see para 16.6 of Notice 708 on Buildings and Construction.

Who can I contact for further information?

For further information please contact the VAT helpline on Telephone: 0300 200 3700.

The helpline is available Monday to Friday, 8am to 6pm.

If you have hearing difficulties, please ring the Textphone service on Telephone: 0300 200 3719.

Issued 7 April 2014