Zero rating on cladding

We can provide the following update on possibility of zero-rating on re-cladding works required after the Grenfell fire.

HMRC appear to accept that:

  • Remedial work can be zero-rated where:
    • the original cladding (since found to have been defective) was installed as part of the original zero-rated construction;
    • the remedial work is being commissioned by the person who commissioned the construction (as HMRC put it, they have ‘person constructing’ status); and
    • the remedial work is (now) done ‘as soon as possible’.
  • If, alternatively, the defective cladding was installed as part of reduced-rated conversion work, remedial work can also be reduced-rated if, again, it is being commissioned by the same person and is done as soon as possible.

If the defective work was to an RRP/RCP building, and the VAT on it was recoverable by the developer as attributable to the zero-rated grant of a major interest, VAT now incurred by the same developer on remedial work is also recoverable as attributable to the zero-rated grant.

In other cases, the cladding of residential buildings might qualify for reduced-rating as energy-saving materials, so long as its dominant purpose was to improve the thermal efficiency of the building.  However, this might be difficult to demonstrate.

HMRC are not proposing to publish anything about this issue but if this affects your department, please contact the Tax Team.

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