Construction services and zero rating concerns

Certain new building construction jobs are zero rated, such as residential and some charitable buildings (including certain charitable annexes). There is a catch (among many) for the unwary in this. Whereas construction of ‘dwellings’ is zero rated both for main and sub-contractors, the zero rate only applies to the main contractor when the building is for community residential use or qualifying charitable use.

The peril of ignoring this is illustrated by the unhappy experience of J&B Hopkins (TC05874). This was a sub-contractor on a charity construction project. There was no dispute that the building qualified for the zero rate. The sub-contractor wrongly zero rated invoices to the main contractor. The latter could have recovered VAT, since it was validly making zero rated supplies to the charity. It went into liquidation, however. The sub-contractor stepped into the main contractor’s shoes and finished the job.