HMRC Set Listed Building VAT Trap

A recent case involving the VAT treatment of listed buildings illustrates a potential trap for those who convert such buildings.

A listed building which has been 'substantially reconstructed' is a zero-rated supply, which means that the VAT incurred on the 'approved alterations' is recoverable.

However, for this treatment to apply, it is also necessary that at least 60 per cent of the work carried out is 'approved alterations'. Accordingly, a building which has been gutted and rebuilt will qualify.

Herein, however, lies the problem: substantial reconstruction implies that the building has been reinstated to its former appearance and this is, in effect, a form of repair. This argues against the possibility of 60 per cent of the work involving 'alterations'.

HM Revenue and Customs (HMRC) have put forward the argument that work cannot be both reconstruction and alteration.

The case in point only considered whether the property had been substantially reconstructed, but the indications are that HMRC wish to pursue their argument at a later date, so watch this space.

This legislation has been around for a long time and this is the first case to pick up on the looseness of the wording of the sections relating to the VAT treatment of listed buildings. If HMRC are successful in their argument, it could have severe implications for developers of such properties.

For more advice please contact Clare Magill on 01752 292654