This recent First Tier VAT Tribunal decision has provided some interesting key findings for construction contractors and sub-contractors.
Summit Electrical Installations (SEI) provided sub-contracting services in the course of construction of student accommodation. SEI zero rated its work under advice from the main contractor, however, this is not correct procedure, as only the developer of qualifying RRU property can issue a certificate to zero rate to the main contractor.
HMRC assessed for VAT and SEI appealed HMRC's decision after it was unsuccessful in attempting to recoup positive VAT from the main contractor. It argued that, in any case, it could zero rate its work on the basis that:
SEI was successful in this argument and the assessment had to be withdrawn.
The key difference in VAT Law is that a sub-contractor can zero rate qualifying work in the course of construction of a new Dwellings, but not in the course of construction of a RRU property.
It is important to highlight that a First Tier decision does not set a legal precedent and HMRC may appeal. However, in our view, it may be difficult for HMRC to overturn this decision, as the arguments put forward on this point of law appear to make logical sense.
There is an advantage to a building being a Dwelling or Dwellings as VAT zero rating can apply down the supply chain. In addition to this, there are no change of use provisions, so zero rating cannot be recovered back at a later date.
Should you need any further information, please do not hesitate to contact Robert Warne or Chris Dears.