An argument centred on whether sub-contractors can zero-rate their services on construction of student flats has been settled by the Upper Tax Tribunal. Summit Electrical Installations Ltd  BVC 5101 have had their zero-rating confirmed, which is also a win for the other cases sitting behind this appeal.
The problem initially arose from the developer of 140 studio style student flats issuing a Relevant Residential Purpose (RRP) certificate for the construction. The effect of this is that only the main contractor can zero-rate their supplies whereas Summit was a sub-contractor and therefore should have charged VAT at 20% to the main contractor. However, as the project was creating new self-contained dwellings, Summit zero-rated its supplies which HMRC challenged.
Summit has successfully argued that the project was zero-rated without needing a RRP certificate, which might seem like unnecessary hair-splitting. However, with HMRC imposing VAT on Summit’s services and the main contractor refusing to pay VAT on its sales invoice, Summit were left with no choice but to make its appeal.
HMRC originally also tried to argue that VAT was due on Summit’s supplies as a consequence of the planning consent requiring that the flats had to be occupied by students. HMRC submitted that this amounted to a planning restriction on use, which tribunal also rejected.
You really have to wonder if cases like this are part of the revenue collection plan? We now have to wait for HMRC’s reaction which will hopefully be in the form of some clear guidance. However judging by how long it has taken them in other lost appeal cases of late, I suggest you don’t hold your breath.
The moral here is that construction of anything other than a ‘vanilla’ dwelling might be challenged by HMRC so you need to tread very carefully.