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HMRC internal manual

VAT Construction

HM Revenue & Customs
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Zero-rating the construction of buildings: is a building being constructed: adjacent buildings subsequently connected

Attempts to minimise the cost of adding to an existing building are sometimes made by constructing additional facilities as a standalone structure adjacent to an existing building and then connecting the two up. The objective is to obtain zero-rating for the new structure as the construction of a building and suffer standard-rating on the often minimal work of making the connection.

To some degree the relief for relevant charitable purpose annexes (VCONST02330) has reduced the incidence of this. If this relief for annexes does not apply you must consider:

  • whether the two phases should be regarded as a single standard rated scheme of work to an existing building, and if not
  • whether the first phase is eligible for zero-rating in its own right. For example, where the construction of a detached building increases the facilities at a relevant residential home or institution, such as a care home, it is unlikely that it will qualify for zero-rating. This is because it is unlikely to be a home or institution in its own right (VCONST15000 and in particular VCONST15140).

On the first point, you will need to consider

  • whether the work is carried out under one or more planning permissions
  • how the work was contracted
  • the reason for and the length of the time gap between the phases of work.

For example, where the connection entails:

  • simply opening a doorway in a party wall or other minor works of integration, both phases will be standard-rated. Check the cases of:

    • Samco Construction Ltd (VTD 4135)
    • Highacre Construction Company Ltd (VTD 5772)
    • Raymond Symonds (VTD 9050)
    • Graden Builders Ltd (VTD 12637)
  • constructing some form of linking structure (such as an enclosed walkway) and the work is performed under separate contracts which are subject to their own separate planning permission and there is a suitable pause between each phase, then the first phase is the construction of a building. Check the case of D S Menzies (VTD 15733).