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HMRC internal manual

VAT Construction

- Zero-rating the construction of buildings: is a building being constructed: what the term ‘the construction of a building’ means

The law restricts zero rating to ‘the construction of a building’.

It is usually clear when a building is being constructed, such as when a detached, freestanding building is built. However it is not so clear when the new structure is joined to, or uses part of an existing building or remains of a building.

In general terms, the law excludes from the definition of ‘the construction of a building’ all works to existing buildings. There are, however some overriding exceptions where the works are treated as ‘the construction of a building’.

These are limited to the:

  • enlargement of, or extension to an existing building to create an additional dwelling or dwellings (VCONST02300)
  • construction of an annexe that will be used solely for a relevant charitable purpose (VCONST02330).

So in determining whether a building has been constructed, you must consider:

  • whether the work is to an existing building (VCONST02240)
  • and if so, whether the work falls within the overriding exceptions in Note 16(b) and (c).