The reference to this in Notice 708 is section 3.4.
“3.4 Services excluded from zero-rating
3.4.1 Architects, surveyors, consultants and supervisors
The supply of architectural, surveying, consultancy and supervisory services is always standard-rated.
These services are, however, procured in a number of ways:
- design and build: Here the building client engages a contractor to carry out both the design and construction elements of the project. Where it is clear in the contract that any services of architects, surveyors or others acting as a consultant or in a supervisory capacity are no more than cost components of the contractors supply and are not specifically supplied on to the customer, then the whole supply can be treated as being eligible for the zero rate.”
The contractor has clearly interpreted this as meaning that the architect can zero-rate his supply if that supply is in connection with a design and build contract. This is incorrect. What it does mean is that the contractor with the design and build contract will incur those standard-rated services in the course of fulfilling his contract, and they will become cost components of his own zero-rated supply of construction services. The contractor should recover the VAT charged to him by the architect, and would zero-rate his supply of construction services which has been costed to take into account the design element.
An arrangement like this is generally advantageous when the developer is intending to retain and let the houses he develops so that any input tax would relate to exempt supplies rather than a zero-rated major interest. It is a way of legitimately minimising irrecoverable input tax.
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