My client is a building contractor working on the renovation of an existing 2 storey commercial building. The developer also wants my client to build a new 3rd storey which is to contain separate residential apartments. I know the work to renovate the commercial storeys is standard rated but can my client zero-rate his work in regard to the new upper residential floor?
The majority of your client’s work in regard to the new residential floor can be zero-rated.
However, your clients work on the roof, constructed on the top of the new residential floor, is considered to be relevant to the building as a whole, not just the upper floor. As such your client will need to value the cost of his services of constructing the roof and will need to apportion his charges between being standard rated (where relevant to the commercial part of the property) and zero-rated (where relevant to the residential part of the property).
This is no defined method to use in regard to apportionment but HMRC insist the result must fairly and reasonably represent reality and as long as it does this then HMRC will not usually argue the method. One method of apportionment in this particular case could be as simple as treating 2/3 of the roof as being standard rated on the basis that 2 of the 3 floors of the building are commercial.
Tony Pocock, Vantage Fee Protect VAT Consultant
4 January 2018
Is Business Property Relief due?
Is this project outside UK VAT?
Definition of a dwelling amendment
Should you charge overseas customers VAT?
0116 274 9123