From 1st October 2012 HMRC changed the VAT treatment of approved alterations to protected buildings and the first grants of a major interest in a substantially reconstructed protected building. It affects all listed residential dwellings and listed buildings used for charitable or other residential purposes and places of worship.
Under the new rules from HMRC, approved alterations on protected buildings will be subject to 20% (standard rate) VAT treatment instead of being zero rated. The reason for the change is to bring the VAT rules in line with the treatment of repairs and maintenance work carried out on protected buildings, which has always been standard rate VAT. HMRC say this has been done as a lot of people were getting confused as to what came under which description.
Therefore from 1st October 2012 the zero rate has been withdrawn. However, to lessen the impact a transitional relief will apply until 30th September 2015 provided the conditions mentioned below are met.
For approved alterations to protected buildings the transitional rules apply to works within the scope of:
- Relevant consent applied before 21 March 2012, or,
- A written contract entered into before 21st March 2012.
Relevant consent is usually listed building consent. However, many listed places of worship are exempt from listed building controls. For these buildings relevant consent is required from the compliant authority (i.e. Church of England faculty).
A Contract is the written contract with the builder, not architect plans, planning permission, etc.
Proof is required to get the zero rated entitlement under the transitional arrangements. Acceptable evidence includes copies of the relevant consent providing they are dated on or before 21st March 2012.
For work on buildings covered under the First Grants of a major interest in a substantially reconstructed protected building, the transitional rules that apply are:
- Relevant consent or written contracts applied or entered into before 21st March 2012, or,
- If 10% of the substantial reconstruction was completed prior to 21st March 2012.
The evidence required to demonstrate the 10% rule would include surveyors estimated, work schedules, evidence of invoicing or payment applications for completed work and commercial documentation which clearly indicates the work on reconstruction completed on a date before 21st March 2012.
For Listed Places of Worship, the builder will need to be satisfied that the relevant permission under the ecclesiastical exemption had been applied for before 21st March 2012 and had not expired. A copy of the application is usually required as evidence. The written contract is also a form of proof as long as it was in place by 21st March 2012.
HMRC has said that it is the builder’s responsibility to apply the correct rate of VAT>
The changes mentioned above relate only to approved alterations to protected buildings and first grants of a major interest in a substantially reconstructed protected building. Any other construction work, which may be zero or reduced rated for VAT remains as mentioned in HMRC’s Notice 708.
If you have any comments or questions regarding this please contact us and we’ll be delighted to help.