Zero rating applies

VAT treatment of converted public house

The property traded as a public house until 2010 and comprised three floors two of which were used for residential purposes as owner accommodation. The taxpayer converted the building vertically into four residential maisonettes. Two comprised half of the ground floor and half of the first. The other two were converted from the old residential accommodation and a new fourth floor. The taxpayer treated the sales of the two maisonettes that used the commercial floor as zero-rated (VATA 1994 Sch 8 group 5 item 1(b)). It was agreed that the other two maisonettes were exempt because they had not used any of the commercial floor.

HMRC disagreed that the maisonettes were zero-rated because they used space that has been previously used for residential purposes as well as the ground floor.

The First-tier Tribunal considered note (9) of group 5  which specifies that zero-rating...