‘Approved alteration’ of a ‘protected building’ (changes introduced on 1 October 2012): Scope of the transitional relief
Approved alterations to a protected building carried out up to 30 September 2012?
Approved alterations work performed up to 30 September 2012 can continue to be zero-rated.
Contracts started before 30 September 2012 but finishing on a later date
If the approved alterations do not qualify for zero rating under the transitional arrangements, a fair and reasonable apportionment must be made between the value of works completed up to 30 September 2012 and the value of works carried out from 1 October 2012. VAT would apply to all works carried out from 1 October 2012.
If the approved alterations qualify for zero-rating under the transitional arrangements, then all approved alterations completed by 30 September 2015 will be zero-rated.
Where the approved alterations qualify for the zero rate up to 30 September 2015 as above but works continue after this date you must make a fair and reasonable apportionment and charge VAT on the value of work carried out from 1 October 2015.
Materials that were delivered in September 2012 for installation after October 2012 cannot be zero-rated if the installation work is not covered by the transitional arrangements
Payments made before 1 October 2012
If a prepayment has been made before 1 October 2012 (the date of the change in VAT treatment) for approved alterations work performed or building services incorporated after 1 October 2012, a special anti-forestalling charge applies on work carried out from 1 October onwards, equal to VAT at the standard-rate . This charge is due on 1 October 2012 and is accounted for in the same way as VAT.
Retention payments in the transitional period
VAT will be due according to when the work was completed regardless of when the release is requested. If it is a general retention for work completed either side of the change then a fair apportionment between the rates should be made.
Substantial reconstructions where the grant is not made by 30 September 2015
Where a first grant of a major interest has not been made by the end of the transitional period then its supply after that date will not be zero-rated for VAT purposes. Any building works which have not been zero-rated as approved alterations will have been standard-rated. If VAT on such works has been recovered as input tax on the assumption that the works were to be used to make a zero-rated first grant, then that VAT will need to be repaid. See Notice 706 on Partial Exemption.
Substantial reconstructions where the grant is made prior to 30 September 2015 but the works are not completed until sometime after that date
Under the 3/5ths test the first grant of a major interest in a substantially reconstructed protected building is zero-rated if 3/5ths of the reconstruction by cost is an approved alteration.
Works completed after the 30 September 2015 do not qualify as approved alterations for VAT purposes. So for the first grant to be zero-rated under the transitional rules, the value of the approved alterations work completed before 30 September 2015 must be 3/5ths of the projected costs of the reconstruction. If the first grant has been zero-rated in anticipation of the 3/5ths of the projected costs of the reconstruction being approved alterations and the actual proportion is lower then the grant is not zero-rated. If no option to tax has been exercised then the supply is exempt. Any related input tax may be restricted, and any VAT previously recovered may need to be repaid. See Notice 706 on Partial Exemption.