When can a construction project or construction services qualify for zero-rated VAT?

The construction of a new building is normally subject to VAT. However, zero-rate VAT may be granted if the construction is a qualifying building.

In VAT Notice 708, HMRC outlines qualifying buildings as:

  • a building ‘designed as a dwelling’
  • a building that will be used solely for a ‘relevant residential purpose’
  • a building that will be used solely for a ‘relevant charitable purpose’ (for non-business use or as a village hall - see paragraph 14.7)

A new building can only qualify for zero-rated VAT if any existing structures are demolished, excluding foundations and basements.

For more information on qualifying buildings, read section 3.2.1 of VAT Notice 708 .

Zero-rated services

Any services provided can be zero-rated as long as the following conditions set by HMRC are met:

  • A qualifying building has been, is being or will be constructed.
  • Your services are made ‘in the course of the construction’ of that building.
  • Where necessary, you hold a valid certificate.
  • Your services are not specifically excluded from zero-rating.

Can I reclaim VAT on items for a new-build residential property that I intend to live in?

Yes, but this is usually only applicable to building materials. VAT would not be recoverable on items such as light bulbs, although recovery would be possible on light fittings.

If you are unsure whether your construction project is zero-rated and would like expert advice, contact our VAT team today on 0161 477 6600 to see how we can help you. Alternatively, find out more in our guide to VAT for residential property developers.

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