VAT changes to HMRC’s view of zero-rated buildings

HMRC has changed its criteria for deciding whether construction services should be zero-rated. Below is an overview of the new rules. As with any complex VAT matters, it’s always worth speaking to us to make sure you remain compliant and avoid unnecessary fines.

Zero-rated construction services

The construction of some new residential and charity buildings can be zero-rated if they meet certain criteria. To qualify, properties must be designed as “dwellings” or intended to only be used for a relevant residential or charitable purpose.

Previous buildings on the same site must be demolished to the ground, unless there is a legal requirement to keep the facade of an existing property.

Keeping any other parts of the old property (however small) means that the zero-rate cannot apply and, in most cases, the work will be liable to VAT at 20% for replacing, altering, extending or enlarging an existing property. (In some cases, the 5% rate may be available – for example, if the work qualifies as conversion of a commercial property or renovation of an existing dwelling.)

The same criteria that apply for zero-rated construction services must be met in order for the sale of the property by a developer to be zero-rated, or to qualify for a VAT refund under the DIY scheme for a private individual.

HMRC response to cases

VAT Information Sheet 07/17: Construction services and zero-rated relief discusses three relevant cases.

  1. In one case, the UT ruled that the construction of a nursing home which incorporated an existing church qualified for the zero-rate because the size and nature of the new property meant that it could not be regarded as alteration, extension or enlargement.

    HMRC accepted this ruling.

    However, HMRC’s policy seems to be subjective and the VAT Information Sheet 7/17 doesn’t comment on how that particular decision could apply to different types of development.

  2. In the second example, the UT decided that keeping part of a facade that did not form part of the planning requirements was sufficient to prevent zero-rating.
  3. In the final case, the UT ruled that the work did not qualify for the zero-rate mainly because it involved keeping additional exterior walls to meet the zero-rate criteria.

HMRC’s response

HMRC’s responses to these examples deal with specific situations where portions of an existing dwelling are retained, and HMRC “now accepts that a very minor part of a building may be retained above ground level if it’s small enough to be ignored as ‘de-minimis’.”  As a guide, retaining brickwork under a ground floor bay window was NOT held to be ‘de-minimis.’ (Unfortunately, there is no definition of the term ‘de-minimis’ in this context!)

HMRC also discussed the meaning of the word ‘facade’, confirming that, in its view, not all external walls can be treated as facades.

Where does this leave builders and developers?

As is often the case with HMRC’s responses to tribunal or higher court decisions, there are more questions than answers and these may lead to some interesting tribunal cases over the next few years of testing HMRC’s revised policies.

In the meantime, if you believe you may have paid too much VAT on construction work, have not claimed VAT relating to a potentially zero-rated sale, or have had a DIY claim dismissed that could be affected by these changes in policy, it’s time to get the claims process started now! Call us on 020 8530 0720 or email for more information or to speak to a member of the VAT Team.

This has been adapted from Marie Stein’s much more comprehensive article on AccountingWeb.

Beyond Accountancy

At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.

Nordens Strategic

Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.

Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.

Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.

Accounting 2 You

Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.

Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.

With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.

Voted as EXCELLENT - 9.9 out of 10 based on 167 reviews

Chris Dyer

Director - Metro Bank

Nordens are always very easy to deal with and extremely professional and efficient. I would have no hesitation in recommending them to my clients for their accountancy needs, no matter how complex they may be.

Read more reviews on Trust Pilot

Jamie Brown

Co-Founder - Chicmi Limited

Very good to work with - the team go above and beyond to make the accounts easy and efficient. They're all super friendly and a joy to work with.

Read more reviews on Trust Pilot

Simon Rose

Director - Rose Opticians

I have been using Nordens Chartered Accountants for 5 years and very happy with the service provided. All members of the team are very knowledgeable and have a wealth of experience which has proved very beneficial to my organisation

Read more reviews on Trust Pilot

Rebecca Bossick

Founder & Director - Physio LDN

Very easy to contact and put me in touch with the right person whenever I need to ask any questions. Extremely knowledgeable and can help me manage my various businesses whenever I need.

Read more reviews on Trust Pilot

James Aconley

Principal - Pauline Quirke Academy

Great accountants, always available to offer advice. The team have transformed my business.

Read more reviews on Trust Pilot

Christopher Wilce

Founder - Dataphone

Having worked with Nordens over the last 5 years, not only to look after my annual accounts but they have also provided outstanding professional advice. They have guided me through a Company share buyback with clear and objective advice. We have also been using Nordens strategic services for a couple of years, which has helped bring about significant improvements that exceeded my expectations. With experience of working with several local accountants over my 29 years in business, I’m very pleased with the service I have received from Nordens.

Read more reviews on Trust Pilot

Dave Hodges

Director - Linekers

Trusted our business with Nordens for over 10 years now and watched the company grow into the successful innovative business it has become today. Deservedly so. Every aspect of financial advice we need is always given promptly and with a smile. We have total confidence in all aspects of advice Nordens give. If you are looking for accountants, its a no brainer!

Read more reviews on Trust Pilot

Tony Charles

Founder - Foundation Sports Limited

A fantastic, modern, vibrant firm that care about the clients and their staff in abundance. It is rare to find an Accountancy firm with such vibrance and focus and relationships. It is no wonder they win award after award in their field.

Read more reviews on Trust Pilot

Peter Horlock

Managing Director - Prime Time Boilers

I have been with Nordens for many years now and they are a great accountants.

Read more reviews on Trust Pilot

Simon Cushing

Founder - Vivid Finishes

We have used Nordens for the last 5 years and have had a great service throughout. The guys are very passionate about what they do and have played a part in the growth of our company, highly recommended.

Read more reviews on Trust Pilot

Andrew Martin

Managing Director - AMD Interior Architecture

Great Service at Nordens from a friendly very approachable team Particularly Kirsty Willis and Joe Sword who have been helping us since we started the business in 2016.

Read more reviews on Trust Pilot

James Robinson

Director - Forma London

Nordens provide a first class service. We moved to Nordens last year and have been impressed with the level of service provided. Keep up the good work!

Read more reviews on Trust Pilot

Latest News

We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.

COVID Loan Fraud &…
Set up in April 2020, the Bounce Back Loan scheme has been considered to be a huge success in helping businesses overcome the perils and decimation that the pandemic had caused. In total, 1.5 million loans (equating to £47bn) w...
The Farming Investment Fund…
Today, the farming and agriculture sector is estimated to be worth £120 billion to the UK economy, whilst employing over four million people. This equates to over 149,000 farm businesses across the UK, however due to the pandem...
Nordens TV

We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.

Nordens Christmas Message 2021
On behalf of everyone here at Nordens, we want to you all a merry Christmas whilst looking back at some of the amazing achievements of the past year. From recruiting new staff, growing our client base, rubberstamping our client...
Live Webinar – Autumn…
The Chancellor of the Exchequer, Rishi Sunak, carried out his briefcase and laid out his Autumn Budget plans on Wednesday 27th October 2021. The Autumn Budget doesn’t usually attract massive attention, however, due to the econo...
  Why I Founded Nordens
Accounting 2 You

In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.

Mark Norden Signature

Mark Norden

We're Professionally Certified

Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!