The Appellant acted as an electrical subcontractor on the construction of a large block of studio flats in Leicester. The First-tier Tribunal ruled that the block of studios was made up of dwellings, for VAT purposes. The construction of a building was also regarded as being constructed for a relevant residential purpose (â€œRRPâ€), however, the zero rating relief for such building does not cover supplies made by sub-contractors. The question for the Tribunal was therefore whether a sub-contractor working on a building that qualified as â€œdwellingsâ€ for VAT purposes but also qualified as a building that could be used for a RRP, could choose the category that should apply for zero-rating purposes. HMRC's present guidance states that the main contractor (who in this instance had determined that the â€œrelevant residentialâ€ relief would be relied upon) determines whether zero rating should apply to services provided by a sub-contractor. However, the First-tier found that there was no legal basis for HMRC's guidance and that the sub-contractor can determine for themselves whether they are working on a dwelling, or a building being used for a RRP. If your business or any of your clients are involved in the construction sector, the VAT liability of the works should always be reviewed from a VAT perspective in order to confirm that the correct rate of VAT is being charged with a view to ensuring that costly mistakes are not made.
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