Glyn Edwards, VAT director at MHA MacIntyre Hudson, who brought the challenge, says that the outcome will create significant cashflow savings for student accommodation contractors, who should no longer be required to pay 20% VAT on subcontractors鈥� services.聽
The application of this judgement will depend on the precise circumstances of each development and, in particular, on the wording of planning consents.聽聽
The case 鈥� RRPs or dwellings?
The appeal concerned the VAT treatment of electrical services provided by Summit Electrical Installations Ltd, a subcontractor at a new build student site in Leicester. The main contractor, Create Construction Ltd, had received a certificate from the developer claiming relief from VAT on the basis that the new building would be used for a relevant residential purpose (RRP), i.e. a communal building for students. Ordinarily subcontractors working on RRP buildings are not entitled to zero-rate their services 鈥� VAT has to be charged at 20%, which the main contractor must then reclaim on a VAT return.
However, like most modern student blocks, the units were designed as self-contained living accommodation including kitchenettes and en-suite bathrooms. While the planning consent restricted use to students, there was no clause preventing each unit from being separately used or sold. Create Construction refused to pay VAT on Summit鈥檚 services, on the basis that that this was the construction of dwellings and should therefore be VAT zero-rated.
The tribunal鈥檚 decision聽
The tribunal agreed that the student accommodation could be treated as 鈥榙wellings鈥� for VAT purposes. HMRC unsuccessfully argued that restricting occupation to students was a restriction on the separate use of each unit.
The tribunal then considered HMRC鈥檚 published policy, which is that subcontractors must charge VAT if a certificate has been issued to the main contractor claiming zero-rating under the RRP relief, even if the construction would also meet the definition of dwellings. The judge dismissed that policy as entirely wrong.
Glyn Edwards, VAT Director at MHA MacIntyre Hudson, said: 聽鈥淭he tribunal鈥檚 decision was a welcome relief for Summit Electrical Installations, but the principal winner in the dispute is Create Construction.聽
鈥淐reate Construction has numerous subcontractors in exactly the same position, and so faced the prospect of having to finance VAT payments to all of them on a multi-million pound development.
鈥淲e hope that HMRC will now acknowledge the inaccuracy in their published policy on this type of buildings, as it has created considerable uncertainty in the construction sector.鈥�
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