Evidence of Zero-Rate Building Services Regarding New Dwelling

VAT Question

My client is a DIY housebuilder and has engaged the services of a building contractor to build the house for them. The contractor is insisting that, in order for him to zero-rate his supplies to my client, my client must provide them with a completed and signed declaration as per those discussed in sections 17 and 18 of HMRC’s VAT Notice 708. Is this correct?

VAT Answer

The declaration that the contactor is requesting is not required in your client case, and unfortunately, it is quite a common misunderstanding amongst builders that, in order for them to zero-rate their supplies when provided during the building of a new dwelling, they must obtain such a declaration you refer to.

The reason for the misunderstanding is likely the term “relevant residential purpose” building (usually abbreviated to RRP) in both the VAT Act and thus in HMRC guidance and the inclusion of the word ‘residential in this term.

The VAT legislation defines an RRP as

  • a home or other institution providing residential accommodation for children
  • a home or other institution providing residential accommodation with personal care for people due to old age, disablement, past or present dependence on alcohol or drugs, or past or present mental disorder (read paragraph 14.6.6).
  • a hospice (as long as that hospice provides some residential accommodation, such as beds for patients).
  • residential accommodation for students or school pupils
  • residential accommodation for members of any of the armed forces
  • a monastery, nunnery, or similar establishment
  • an institution which is the sole or main residence of at least 90% of its residents but not used as a hospital or similar institution, a prison or similar institution, or a hotel, inn, or similar establishment.

The relevant part of the VAT Act referring to RRP’s allows, in certain circumstances, a building contractor to zero-rate their supply of construction in the building of a new RRP. BUT, in order to support the zero rating, the legislation requires the contractor to obtain and hold such a declaration as those discussed in sections 17 and 18 of VAT Notice 708.

Of course, in seeing the word “residential” in RRP, many builders/contractors have assumed that this requirement also applies when they provide building services in the building of a new dwelling, but this is not the case.

A separate part of the VAT legislation to that regarding RRPs simply zero-rates the supply of building services and related building materials provided as part of those building services during the building of a new dwelling.

However, in this part of the legislation, there is no requirement for a declaration to be supplied to and held by the builder to support the zero-rating; the services are simply zero-rated, and historically, the usual evidence HMRC requires to support zero-rating in this instance is a copy of the planning permission granted for the build.

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