VAT CASES - 27.10.2022

Did building work on empty house qualify for 5% VAT?

The case. Northchurch Homes Ltd (N) claimed that building work it carried out on a house should be zero-rated on the basis that it had been completely demolished and rebuilt, with only a single façade being retained. However, other aspects were retained, including the front slope of a roof and other structural and decorative parts. N’s secondary argument was that the work qualified for 5% VAT because the house had not been lived in during the two-year period up to the date when work started on 3 June 2019. The previous resident moved out on 20 February 2017.

The law. The zero-rating legislation on construction services allows a single façade to be retained on an existing dwelling - or a double façade in the case of a corner plot - but only if the retention is a condition of planning consent or other statutory requirement. A reduced VAT charge of 5% applies to work carried out on a dwelling that has been empty - not lived in - for the two-year period prior to the start of any building work.

The decision. There was no scope for zero-rating because more than a single façade had been retained from the existing house. The law is clear on this issue. However, the judge felt there was sufficient evidence available about the two-year empty period, including the owner’s written statement, and therefore allowed the appeal on this issue.

Key points.The 5% VAT rate can apply in three different situations as far as construction services carried out on dwellings is concerned: if a non-residential building is converted into dwellings, such as an office converted into flats; if a project produces a different number of dwellings between the start and finish of the work, e.g. a detached house is converted into two semi-detached houses or vice versa; thirdly, the two-year empty period relevant to this case.