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HMRC internal manual

VAT Construction

Zero-rating the construction of buildings: are my services supplied ‘in the course of the construction’ of the building: completion - fact and degree

There is no one factor that will always dictate whether building works are ‘complete’ as circumstances will vary from project to project. As a general rule, a building is regarded as being in the course of construction until all main elements for it to function for its intended purpose are in place.

The comments and observations below serve to reinforce the fact that the point at which a building is ‘complete’ is a matter of fact and degree. They also provide an indication of the weighting that can be attached to different factors.

Planning consent

Planning consent describes the scope of a project. It will show the extent and nature of the works to be carried out.

Generally, a building is complete when it has been finished according to the approved plans. However, the other factors described below must always be borne in mind.

Qualifying work may be carried out under more than one planning consent. This was confirmed in Brahma Kumaris World Spiritual University (VTD 12946), where the Tribunal stated:

We adopt the views of the Tribunal in S A Whiteley (VTD 11292), namely that the requirement of a single planning consent is not necessary for zero rating to apply. It is a question of fact in each case… A single planning consent may well indicate that parts of a building built in phases are ‘in the course of construction’… but other factors also may be relevant. For example, a taxpayer might apply for a planning consent for a building and, before commencing development, might apply for some alterations to that consent or for a further consent relevant to the same building. Here all the building works could be carried out ‘in the course of the construction of the building’ even though there were a number of planning consents. Accordingly, we conclude that a single planning consent is not crucial to the decision as to whether supplies are made ‘in the course of the construction of a building

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Certificates of Completion

Planning authorities may issue a Certificate of Completion when a building satisfies building regulation requirements. The issuing of a certificate is generally a good guide that a building has been completed but, as has been recognised in Carrophil Ltd (VTD 10190), they cannot always be relied upon:

I cannot accept, as an immovable principle, the proposition that the course of construction of a building stops when the architect issues the Certificate of Practical Completion. It may be a useful working rule but it will be displaced where for example under the provisions of the original building contract some structural work is carried out or some essential services are installed, in both cases after the issue of the Certificate… It is all a matter of degree.

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Date of occupation

In S A Whiteley (VTD 11292), the Tribunal looked at whether occupation could be used as a conclusive test and observed:

Although in our view, first occupation may well be a relevant factor in determining when the construction of a building ceases, it is not the only factor.

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Intentions and wishes

In general, the intentions or wishes of the parties to the construction contract carry little weight when determining when ‘completion’ takes place.

In Brahma Kumaris World Spiritual University (VTD 12946), the Tribunal Chairman said:

The legislation does not mention the intention of the parties and, in our view, the mere intention of a taxpayer at the outset cannot mean that all subsequent activity on a building, whenever undertaken, so long as it is in accord with original intention, must be in the course of the construction of it. That could lead to the conclusion that additions to a building made many years after its completion should be zero rated so long as the taxpayer could show an intention at the outset to incorporate such additions. In our view the legislation cannot be interpreted in that way.

The above reasoning was adopted in the case of The Trustees of the Sir Robert Geffery’s School Charity (VTD 17667). Here, a new single storey school building was constructed between 1989 and 1992. It was designed and intended to take a second storey. In 1998 a second storey was added to it. It was decided that the building had been completed in 1992, and that the 1998 works were not the continuation of the construction of a building.

Similarly, the appeal in Alfred Gordon and Winifred Simister (VTD 12715) was dismissed. Here, the intended works took place shortly after the transfer of the property, with the Chairman saying:

In my judgment the question whether the building was complete ought to be regarded from the vendor’s point of view rather than by reference to any future work which the Appellants proposed. So far as the vendor was concerned, it had contracted to hand over a completed building, and it did so. If the Appellants wished thereafter to alter or add to it, that was no concern of the vendor’s except in so far as the alteration or addition might require its consent under the restrictive covenant mentioned earlier, a matter which in my judgment is immaterial to the present question…

After the completion of the contract the Appellants did the further work. With regard to the conservatory, undoubtedly the work was work of construction, but in my judgment it amounted to the enlargement of an existing building, namely the house…