Student Accommodation: construction no longer zero rated?
The construction of a building intended for use solely for a relevant residential purpose (RRP), and the first grant of a major interest in such a building by the person constructing it, are zero-rated. RRPs include student accommodation.
As one of the conditions for zero-rating the user of the building must, before the supply is made, provide a certificate to the builder or developer as evidence that the building is intended to be used solely (at least 95%) for a relevant residential purpose.
It has been accepted as a concession by HMRC that even if student accommodation is used outside of term time for vacation letting that the accommodation will still qualify as being for a RRP and zero rating will apply on the construction.
HMRC announced 12 months ago VAT Information Sheet 02/14 changes to the VAT treatment of student accommodation which include that from 1 April 2015 HMRC will be withdrawing the concession which allows Higher Education Institutions (HEIs) to ignore vacation use when determining how new student accommodation is intended to be used. As a result, it is extremely likely that from 1 April 2015 the construction of new student accommodation will be standard rated unless there is no vacation use or it is less than 5%.
HMRC have also announced that they will be withdrawing an associated concession that allows the construction of dining rooms and kitchens to be zero-rated as residential accommodation for students and school pupils if they were used "predominantly" by the living-in students
Until 1 April 2015, those affected can choose either to use the concessions or rely on the statutory position. HMRC are introducing various transitional rules which HEIs may be able to benefit from depending on the timing of the construction on the new site. In addition, it may be possible to consider early on in the planning stage whether there is any scope for zero rating to still be achieved on the construction of new student accommodation as dwellings (see information sheet above).