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HMRC internal manual

VAT Construction

Zero-rating major interest grants in substantially reconstructed ‘protected buildings’: what ‘substantially reconstructed’ means: substantial reconstruction - the two-stage approach

Note 4 contains two stages, both of which must be met before a building is ‘substantially reconstructed’:

  • the building must have been reconstructed (VCONST10330)
  • the reconstruction is substantial in that it either meets:


This two-stage approach was established in the case of Donald Barraclough (VTD 2529) where the Tribunal stated:

In our judgement, the sale by Mr Barraclough of 9 Friday Street was a taxable supply if, but only if, he had ‘substantially reconstructed’ that building following his purchase thereof. In this regard we agree with the argument advanced by Mr Dangerfield that, to establish the required proposition, Mr Barraclough must show both that the building was ‘reconstructed’ in common parlance and that the reconstruction was ‘substantial’ under the provisions of the Notes to Group 8A [now Group 6]…

The following Tribunal cases have subsequently adopted the two-stage approach put forward in Barraclough:

  • Vivodean Ltd (VTD 6538)
  • Lordsregal Ltd (VTD 18535)
  • Southlong East Midlands Ltd (VTD 18943)
  • Cheltenham College Enterprises Ltd (TC00429).

Note: In Lordsregal and Cheltenham, the first stage question differed from the one in VCONST10330 in that the Tribunal considered the question to be ‘Is the building substantially reconstructed?’