VAT rate for building services on residential property projects

The taxpayer was a sole trader builder who supplied construction services in relation to 25 residential properties owned by a property company that he owned. Some of the properties semi-detached with land at the side so that the existing house could be extended or another dwelling built on it. He converted the properties into houses of multiple occupation (HMOs). In 14 he created a new dwelling on the adjacent land while he extended the other 11. The property company then rented out the HMOs through a letting agency.

The taxpayer claimed all work was subject to 5% VAT because it was linked to a residential conversion project - dwellings into HMOs. HMRC disagreed. It decided the VAT liability should be split. The extended properties were subject to standard rate VAT at 20%. The work on the new builds would be standard rated until the point when planning permission had...