VAT: a reprieve for Design and Build contracts?

Tuesday, 02 August 2011 00:00

It is reasonably well known that a new building that would otherwise be standard-rated for VAT can be zero-rated if it is for a (non-business) charitable or residential use. But the professional fees (architects, quantity surveyor, M&E consultants etc) do not usually qualify for zero-rating. With fees running at 10, 15 or even 20% of the building cost, a 20% VAT hit on top does a lot of damage to any project cost for a charity, educational body or housing association that cannot recover the VAT that they pay.

The way round this was to set up a 'design and build' contract whereby the charity entered into a single contract with another party (possibly its own VAT-registered trading company) which then engaged both the building contractors and the supporting professionals. Last month, such schemes looked under threat, but HMRC has now indicated that it is not now considering any change in the VAT treatment of such arrangements.

But it is well known that HMRC is looking for any opportunity to increase its tax take by challenging schemes that it considers dubious. Charities and other bodies that qualify for zero-rating on construction costs would be well advised to ensure that their D&B documentation is watertight.

Our charities and commercial teams are on hand to offer support and advice on this tricky area.

For further advice, please contact our specialists:

Richard King, Megan Cross and Amy Laver: 01392 207020