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HMRC internal manual

VAT Construction

HM Revenue & Customs
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Zero-rating the construction of buildings: are my services supplied ‘in the course of the construction’ of the building: work to the fabric of the building

In Brahma Kumaris World Spiritual University (VTD 12946), the Tribunal Chairman set out the broad purpose of the zero rate relief:

The legislation clearly zero-rates what we call the original construction of a building but also clearly excludes from zero rating additions made after the original building exists.

Works to construct the building itself are only zero-rated up to the point where the building can be said to have come into existence.

The decision in Brahma Kumaris World Spiritual University (VTD 12946) goes on to explain the general approach that should be taken:

In our view it is a question of fact and of degree as to when the original building can be said to come into existence so that additions thereafter become standard rated. We consider that we have to reach a decision on that issue objectively having regard to all the facts and evidence before us.

In Hoylake Cottage Hospital Charitable Trust (TC00925), the charity proposed to construct, in 2010 to 2011, a kitchen and laundry facility as an extension to a care home that had been built in 2008 and had been in operation since then. The home had been using a kitchen and laundry facility in another building close by in the interim.

The Tribunal held that the construction of the kitchen and laundry facility was not a standard-rated extension but the continuation of the construction of the zero-rated care home. They stated:

We have considered the facts and the law and have decided that the construction of the kitchen and laundry block are a continuation of the original development and should be zero-rated. When the first phase was being constructed HMRC conceded that the Hospital could continue to use the kitchen and laundry facilities until such time as the new kitchen and laundry facilities were built. Whilst it is suggested that the 60 bed nursing home could operate without the kitchen and laundry in the old building, by importing caterers and outsourcing the laundry function, the fact of the matter is that they did not do so. The Hospital has chosen to continue to use the kitchen even though there was the inconvenience of transporting food in trolleys across the site. We are satisfied that the kitchen and laundry are connected to the use of the building. When constructed they will form an integral part of the Hospital’s operation and will provide compliance for the requirements of the Commission for Social Care Inspection. Once the Day Centre is constructed the Hospital will represent a complete building to fulfil all the needs of a nursing home.