HMRC now accepts that buildings constructed under a C2 consent, normally used for residential institutions, can be zero rated as dwellings - provided they meet the conditions for being ‘designed as dwellings’. The brief represents a significant change of policy by HMRC as it means that some residential developments that would previously have been subject to VAT at the standard rate, could now be zero rated.
The brief deals only with the construction and first sale of extra care units. In particular, HMRC continue to distinguish accommodation where the care is of a type typically provided by an ‘institution’. HMRC will be considering its policy where buildings are converted into extra care units and the potential implications for buildings used for other residential purposes (for example, student accommodation) and developed under a C2 consent later this year.
A copy of the Brief can be accessed by following the link below:
HMRC website - Revenue & Customs Brief 47/11
If you’ve incurred VAT on the construction of extra care units then we strongly encourage you to contact John Rippon or your normal KPMG VAT contact to discuss whether the transaction should have been zero rated.