Although a case specifically concerning itself with new build for charitable and residential purposes; the York University Case does contain useful insight into how HMRC (and the Courts) consider phased works. This can be applied to 5% schemes where properties are either converted or brought back into use after a period of abandonment. The 5% VAT rate relates to the physical conversion of such a property and once ‘complete’ the 5% rate is expired.

Care is required where such schemes are phased, and in this regard we often use the planning permission to show that the overall works –albeit phased – are part of one single conversion and thus all eligible for the reduced rate. The York Case found that the 5% criteria tests need to be applied on the physical characteristics of the building in question at the date the later works are carried out – and whilst a single planning consent may be helpful – the terms of a planning consent are largely ignored when deciding VAT, as are the intention of the taxpayer…

We therefore have the situation where the 5% rate could be ‘used up’ by the first phase of a renovation or conversion, with the second or later phases being seen as applying to a building already converted or renovated. This is a complex case and there are other factors to consider – the time between the phases carrying weight, as would the nature of the phasing.