In HMRC v Astral Construction Limited [2015] UKUT 0021, the Upper Tribunal (UT) found that a new nursing home constructed on the site of a redundant church, and which incorporated the original church, could still qualify for zero-rating.

The supply in the course of construction of a building designed as a dwelling, number of dwellings, or intended for use solely for a relevant residential or relevant charitable purpose, is zero-rated under the Land and Property VAT rules within Group 5 of Schedule 8 of the Value Added Tax Act 1994.


The notes within that schedule are also part of the law. Note 16 advises that the construction of a building does not include the following:

  • conversion
  • reconstruction
  • alteration
  • enlargement
  • extension

of an existing building, except where the enlargement or extension creates new dwellings.

It also does not include the construction of an annexe to an existing buildings except where the annexe is intended for use solely for a relevant charitable purpose.

This note leads to the general understanding that construction services on ‘new build’ dwellings, charitable buildings and relevant residential properties are zero-rated, though this is not quite what the law says.

Note 18 enhances note 16, confirming that a building only ceases to be an existing building when it is:

  • demolished to ground level, or
  • the part remaining above ground level consists of no more than a single façade or for corner sites, a double façade, and only if it is a condition of planning consent that that façade remain.

These notes came under scrutiny in the Astral case.

Astral were contracted to construct a care home on the site of an old church. The old church had a number of extensions. The extensions were demolished but the original church was retained and was integrated into the care home.

The church became the main entrance, reception area, and also housed a shop, activity room and small chapel.

Overall it only formed around 10% of the care home’s total square footage.

The UT acknowledged that this was an existing building. Under note 18, it had not been demolished and had not been deemed to be demolished.

However, the UT concluded that zero-rating could apply to the works by Astral:

  • Based on the final construction, it would be a misnomer to describe the works as an extension to the church.
  • The church was dwarfed structurally, and as a whole, by the new build.
  • Looking at the final structure, it is a large fully functioning care home of modern design.
  • It has incorporated an old disused church in a very attractive way.
  • No objective observer could see the new build as an extension or enlargement of the church.

The UT summarised the decision to allow zero-rating confirming that “the structure that now exists is a single fully functioning care home. As a matter of impression, size, shape, function and character it is so vastly different from the existing church that it cannot be said to constitute the conversion of the church or an enlargement of or extension to the church”.

As it was not within note 16, the works were supplies in the course of the construction of a building designed as a relevant residential property and were zero-rated.

HMRC’s appeal against the FTTs earlier decision to allow zero-rating was therefore dismissed.


VAT: Land & Property at a glance

VAT: Land & Property (notes)

External link: HMRC v Astral Construction Limited [2015] UKUT 0021


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