VAT on construction of Student Accomodation

The VAT liability of works in connection with constructing student accommodation can be uncertain. This case indicates that it is possible for the construction of student accommodation to satisfy the definition of ‘dwelling’ for VAT purposes.

This reads as a bit "techie" but if you're in the business of construction of student property, this judgement is VITAL.

This case relates to whether supplies in the course of constructing student accommodation are to be treated as zero-rated as they relate to dwellings, or if, as HMRC contend, standard rated as although they relate to a ‘relevant residential’ building supplies are made by a sub-contractor.

The appellant, Summit Electrical Installations Limited, had received a zero-rate certificate from Create. Create subcontracted electrical works to Summit Electrical in connection with the construction of student accommodation. However, say HMRC, “… the zero-rating certificate was evidence of Create’s intention to zero-rate supplies to the developer and on the basis that the buildings were to then be used for a relevant residential purpose […] HMRC refused to permit the appellant to zero-rate supplies.” HMRC subsequently adjusted the return for the relevant period, reducing the VAT credit by £1,365.62.

Supplies in the course of constructing a building for a relevant residential purpose can be zero-rated when supplied to the user of the building direct. Supplies by subcontractors cannot be zero-rated. However, Summit Electrical argued that its supplies were zero-rated as the works related to the construction of new dwellings.

HMRC sought to argue that the only supplies which were zero-rated were those from Create to the appellant as the building was for a ‘relevant residential purpose’ and not the construction of a group of dwellings because the separate use of disposal of the dwellings were prohibited (a condition that must be met in order to qualify as a ‘dwelling’ for the purposes of the VAT zero-rate). The Appellant claimed that the planning condition to house a closed group of students was not a restriction previously considered to represent a prohibition on a separate use or disposal. HMRC sought to claim that this was precisely the type of prohibition envisaged by the separate use and disposal condition.

The Tribunal found that separate use and disposal of the dwellings was not prohibited as each letting represents a separate disposal. Summit Electrical’s appeal was allowed.