A recent case has highlighted some important VAT differences that constractors and sub-contractors need to be aware of between types of student accommodation.
Summit Electrical Installations (SEI) had acted as a sub-contractor during construction of a block of studio flats for students. The flats were to be made available to purchasers on a buy to let basis, but the planning permission restricted occupation of the flats to students of two local universities. Student accommodation is commonly referred to as ‘Relevant Residential’ (RR) accommodation and construction of RR accommodation is zero rated only where the main contractor/ developer is issued with a certificate by the building owner. The main contractor had incorrectly supplied SEI with a zero-rating certificate and SEI had zero rated its work.
HMRC assessed SEI for VAT and SEI appealed after it was unsuccessful in attempting to recoup the VAT from the main contractor. SEI argued that it could zero rate its work because
- the student accommodation here consisted of a number of individual ‘dwellings’ which did not require a RR certificate; and
- there was no restriction upon the separate use or disposal of the flats, even though planning meant that the use was restricted to use by students so they met the criterai to be ‘dwellings’.
The tribunal agreed with SEI and agreed that it could zero-rate its services.
The key difference between a RR building and a dwelling is that sub-contractors can zero-rate qualifying work in the course of construction of new dwellings, but not in the course of construction of a RR property. HMRC’s guidance states that, in such situations, the main contractor determines which type of zero-rating should apply. However, the FTT found that there was no legal basis for this approach and that any sub-contractor can determine for themselves whether they are working on a ‘dwelling’, and zero-rate their supplies regardless of whether the main contractor considers that it is supplying a dwelling or an RR building. HMRC may yet appeal the decision but the case highlights the need for both contractors and sub-contractors to be aware of the VAT implications of the design of buildings.