VAT and construction services: guidance on when subsequent building phase is zero-rated (First-tier Tribunal)

The First-tier Tribunal has held that supplies made during the second phase of construction of a university building were made in the course of the enlargement or extension of the building built in phase one and therefore did not quality for VAT zero-rating under item 2 of Group 5 of Schedule 8 to the Value Added Tax Act 1994.

This decision does not break new ground but it is a clear and useful exposition of the principles used to differentiate between the construction of a building, services relating to which are zero-rated for the charitable sector, and the extension or enlargement of a building, services relating to which are standard rated. There are relatively few cases in this field where the taxpayer has argued successfully for zero-rating, and this is not one of them. In this case, the decisive factor appears to have been that the function and operation of the building did not change after construction of phase two; phase two essentially created more of what had been built in phase one, was used in the same way and could not be said to be integral to the development. The taxpayer’s intention (vision) for the development was of little relevance to the VAT analysis. (York University Property Company Ltd v HMRC [2015] UKFTT 225.)