Do we charge VAT to demolish building so that houses can be built?
Q. My business supplies construction services and I have been asked to demolish a derelict public house, which will then become a site for new houses to be built. The property owner/developer has not yet received planning permission to build houses but does not expect any problems with the local authority. Should we charge VAT on our services or are they zero-rated because they relate to new dwellings?
A. If your contract with the landowner was to, say, demolish an existing building to bare land and then construct new dwellings, your services would be zero-rated, including the materials you supply as part of your work. However, at the moment, there is no planning permission in place to build houses, so it is premature to say that your work is directly linked to the preparatory work needed to construct new dwellings. You should therefore charge 20% VAT on your demolition work; the owner/developer will be able to claim input tax if their intention is to sell the houses when they have been completed, i.e. generating zero-rated sales rather than exempt rental income.
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