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Following the recent decision in the Douglas Virtue & Sonia Virtue T/A Lammermuir Game Services case [V20259], HMRC have announced a change in the liability treatment of serviced building plots.

A serviced building plot is bare land in respect of which civil engineering works have been carried out to provide access to essential services such as gas, electricity, water, main drainage, street lighting and sewerage. Until now, HMRC have treated the supply of a serviced building plot by the landowner to a developer as consisting of two supplies - an exempt supply of land and a standard-rated supply of civil engineering.

In a recent VAT Tribunal it was held that the sale of a ‘plot of land within a serviced site’ constituted a single exempt supply of land. The Tribunal also held that, in this case, the supply of the civil engineering works to the landowner was zero-rated because it had been made in the course of the construction of a ‘building designed as a dwelling’. The supply of civil engineering works is normally standard-rated.

HMRC now accept that, with immediate effect, the supply of a serviced building plot of land is a single exempt supply of land by the landowner. The supply of civil engineering works to the landowner to provide access to essential services will continue to be standard–rated in most cases. However, where the landowner can demonstrate that these services are being received in the course of construction of a building designed as dwellings, or buildings intended for use solely for a relevant residential or a relevant charitable purpose, they can be zero-rated.

Following the Tribunal decision:

• landowners will now be making an exempt supply of land and will not be able to register for VAT unless they have other taxable activities;
•  if the supply of the civil engineering works to them is standard-rated, they will not be able to recover this VAT and it will become a cost to the landowner; and
• developers and DIY housebuilders will now not be charged VAT by landowners in this situation.

Link

HMRC: Brief 64/07