The case
The project related to the demolition of a building and the construction of a new dwelling. However, at the time when CMJ started its construction work for the developer, the only planning permission in place related to the alteration and extension of the existing dwelling. The local authorities instead granted a building warrant, allowing the demolition of the existing property because the remaining walls were unstable. CMJ therefore supplied construction services to build a new dwelling but at the time it carried out the work, there was no statutory planning consent in place for a new dwelling. HMRC issued an assessment for £59,167, treating CMJ’s work as standard-rated.
The law
A number of conditions must be met before building work on the construction of new dwellings can be zero-rated, as specified in Group 5, Sch. 8, VAT Act 1994 . One condition is that statutory planning consent has been granted for a new dwelling before the work starts.
The decision
HMRC’s view is that a building warrant is not sufficient for zero-rating purposes because it is not statutory planning consent. The judge agreed and dismissed the appeal. He confirmed that verbal planning consent, which appeared to have been granted before the work started, was not adequate. For zero-rating purposes, it is a case of “what it says on the tin”.
CMJ (Aberdeen) Ltd v HMRC [2021] TC8140
You might be shocked by this decision. CMJ clearly built a new dwelling, and this work usually qualifies for zero-rating. However, the restrictions in the legislation mean that builders and property owners have to work hard to secure their zero-rating. An alterations and extension consent from the local council was not sufficient. Make sure you tick all of the boxes if you are involved with zero-rated building projects.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.