Is student accommodation a ‘dwelling’?

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.

If you woud like more information contact Soc or Linda.

VAT – care homes and hospitals

In Revenue and Customs Brief 2 (2017) HMRC announce they have revised their policy on the definition of ‘personal care’ for the purposes of deciding when a new building can qualify for zero-rating as a care home, or is treated as a standard-rated hospital.

Following the decision of the First-tier Tribunal in Pennine Care NHS Trust (TC04998), HMRC now accepts that besides providing for lengthy periods of residence, ‘personal care’ in a care home may also involve a high level of medical treatment. A treatment centre incorporated within a care home and used at least 95% by the residents of that home will qualify for zero-rating. Businesses may be able to recover VAT previously paid on supplies of construction works which would have been eligible for zero-rating under the revised policy, subject to the four-year limit on claims.



A new timetable for Making Tax Digital – VAT to the fore

On 13 July 2017, the UK Government announced major changes to the timeline for the implementation of Making Tax Digital (MTD). Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. They will only need to do so from 2019.
  • the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.
  • for taxes other than VAT businesses will not be asked to keep digital records, or to update HMRC quarterly, until at least 2020.

Proposals will be put in place when changes are brought forward as part of the Finance Bill, expected to be published soon after the Parliamentary Summer recess. HMRC have provided updated information here.

Significant changes to VAT reporting

Record keeping and quarterly reporting for MTD purposes will be significantly different from current VAT record keeping and quarterly reporting. Although the majority of VAT registered businesses report their VAT figures online, this is only via manual input of final figures onto HMRC’s VAT Online system. MTD will require businesses to use accounting software that can link directly to HMRC’s systems. Businesses will no longer be able to keep manual records.  As the use of spreadsheets in VAT accounting is commonplace, (typically to correct the output from accounting software and to operate partial exemption and other VAT schemes), these challenges should not be underestimated.


MTD for VAT is expected to take place at the same time as the UK leaves the EU (April 2019). Uncertainty around the VAT treatment of transactions between the UK and EU will inevitably arise, and businesses will need to both understand the tax-technical changes to the rules, and ensure that their accounting systems deal with such transactions correctly.