An enquiry from a client highlighted the importance of thinking laterally in relation to VAT reliefs.
The client in question was a farmer who was extending and converting a garage attached to his farmhouse. He was seeking to create a separate dwelling for his parents, who were still partners in the farming business. At first it all looked a bit negative. The planning permission did not allow the “new” dwelling to be occupied or disposed of separately from the main farmhouse. That meant that for VAT purposes neither the zero rate for new houses nor the reduced rate for qualifying conversion works could apply. Although the parents were still partners in the business, the actual business use of the new living accommodation was likely to be too limited to justify any claim for the VAT through the farm’s VAT returns.
However, when the client described the proposed works in more detail, other possibilities emerged. The parents both suffered from long-term disabilities. A special bathroom was needed with a walk-in bath and a stair lift would be needed to enable the parents to get from the ground to first floor. This opened up the door to some of the zero-rating available for certain goods and services supplied to long-term disabled individuals.
Who can qualify?
The zero-rating is available when certain goods and services are supplied either to long-term disabled individuals or to charities.
Chronically sick or disabled
The VAT legislation still uses the archaic term “handicapped” but HMRC’s guidance has moved on. Individuals qualifying are those with a physical or mental impairment that either:
- Has a long-term and substantial adverse effect on their ability to carry out everyday activities; or
- Is a condition such as diabetes that doctors treat as a long-term sickness.
Which building works may be eligible?
The rules are intricate and so this Update cannot be comprehensive. This outline should be regarded as a taster, and we are happy to give more specialist advice. The rules for charities in each case are slightly different from those for individuals.
You can zero rate the construction of ramps and the widening of doorways or passageways where the work is designed to make it easier for a disabled individual to get into or around their own home. Similarly these works may be zero-rated when supplied to a charity to assist disabled individuals in entering or moving around any building. HMRC interprets “ramps” to include other works that equalise floor levels. On the other hand, new doorways or passageways do not qualify for zero-rating.
There is scope to zero rate washing facilities designed to meet the needs of disabled individuals. For example, you can zero rate the supply, extension or adaptation of a bathroom, washroom or lavatory in a disabled individual’s home.
For supplies to charities the rules are more complex. In the case of a bathroom, washroom or lavatory, the bathroom, washroom or lavatory must either be in residential accommodation or in a day centre where at least 20% of the individual users are disabled. You can also zero rate the provision or extension of a washroom or lavatory in a building used “principally by a charity or for charitable purposes”.
The reliefs are probably not as widely used as they should be – they are worth investigation.
If you need more advice on any other VAT issues, please feel free to contact Terry Dockley & Co who take the sting out of VAT!
10 Rectory Close
Newbury RG14 6DE