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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 (“RRPâ€), 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 “dwellings†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 “relevant residential†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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