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Supply of building materials

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Generally a supply of goods does not qualify for zero-rating even if the goods are to be used in connection with zero-rated construction work, such as a new build house. This is because VAT legislation (VAT Act 1994 Schedule 8 Group 5 Item 4) only provides for the zero-rating of new buildings materials where “the supplier is supplying services within item 2 or 3 of the Group which include the incorporation of materials into the building in question”.

There is a similar provision for the supply of goods in connection with building services supplied to a disabled person (VAT Act 1994 Schedule 8 Group 12 Item 13). Historically HMRC’s view was that item 13 intended to zero-rate only those goods supplied by the supplier of the actual building services. This would mean that if someone other than the supplier of the goods supplied the building services to a disabled person, the goods could not be zero-rated.

However, HMRC changed their policy following the tribunal decision in Gary Flather (VTD 11960). They now accept that a builders’ merchant can zero-rate a supply of materials if they are satisfied that the building work to be carried out qualifies for zero-rating and can demonstrate that, if called upon to do so. However, there is an important exception and this is where the goods are bought to be used in connection with works to be carried out in a DIY capacity, or by a friend or relative free of charge. As there would be no consideration for the service, there is no supply of zero-rated services for them to be “connected” to, and therefore the supply would be standard rated.

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