Andrew Needham looks at the special rules regarding VAT recovery on the construction of a residential house and what VAT cannot be recovered.
The sale of (or long lease – more than 21 years) of new residential housing is a zero-rated taxable supply, so normally a business would expect to be able to recover all the VAT connected with the construction and sale of the property.
However, this is not the case; there are some restrictions on what items a business can recover the VAT on.
Building materials
VAT can be recovered on what HMRC defines as ‘building materials’ that are ordinarily ‘incorporated’ in the building. HMRC gives detailed guidance on what they consider to be building materials in VAT Notice 708 para 13.8.1.
Examples of what HMRC does not consider to be building
