Category Archives: VAT DIY Housebuilders

VAT: DIY Housebuilders’ Scheme – The Brian Lawton case

By   25 November 2024
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Latest from the courts

In the First-Tier Tribunal (FTT) case of Brian Lawton the issue was whether a second claim under the DIY Housebuilders’ Scheme was valid.

Background

Mr Lawton appealed against the refusal of HMRC to pay a claim submitted in respect of the conversion of a barn into a dwelling and subsequent extensions. Unfortunately, the project faced delays and increased costs due to the Covid-19 pandemic. He claimed a refund of VAT in June 2021, which HMRC repaid. The appellant submitted a second planning application for an extension, which was approved, and the work was completed in October 2022. He then made a second VAT claim October 2022 which HMRC refused.

The issue

Whether it was possible to make more than one single VAT refund claim via the scheme when the project was split into two specific phases. Planning permission was granted for two developments, the:

  • first permission was for the conversion of a barn to a dwelling
  • second permission was for an extension to existing barn conversion for two bedrooms

– whether the second claim was ineligible for a refund as an extension to an existing dwelling and whether decision to disallow claim for a VAT refund was correct.

Arguments

Lawton contended that it was possible to make two separate claims due to the distinct nature of the projects, and that his first claim had been erroneous since the barn conversion was uninhabitable.

HMRC’s view was that the second claim related to an extension to a dwelling and not the actual conversion and was consequently ineligible.

Decision 

Despite the FTT being sympathetic to BL’s predicament in progressing the first application development at the time of the Covid pandemic and the lockdown with the financial and economic challenges these brought about, the appeal was dismissed.

The Tribunal considered that HMRC were entitled to insist that only one claim was made under the scheme in circumstances where there has been no repayment in error or invoices and works carried out before the claim was submitted and left out of account in error or invoices issued late by a contractor.

It considered that the first claim was the only one which could be made and was restricted to the stage of development that Lawton had submitted and was covered by the completion certificate of March 2021, being “the conversion of a barn to a dwelling”.

The court emphasised that completion for VAT purposes must align with original planning permissions and agreed with HMRC’s position that extensions to existing dwellings do not qualify for refunds under the scheme.

Legislation

The VAT Act 1994, Section 35.

Commentary

This case highlights how important both timing and adhering precisely to the rules of the scheme are. The cost of a self-build can be significant and recovering any VAT incurred is important to ensure budgets are met as far as possible.

Further reading

Background to the scheme here, ten top tips here  and further information and other cases on the scheme:

VAT – Understanding land and property issues

By   8 July 2024
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Help!

Supplies relating to property may be, or have been; 20%, 17.5%, 15.%, 10% 5%, zero-rated, exempt, or outside the scope of VAT – all impacting, in different ways, upon the VAT position of a supplier and customer. In addition, the law permits certain exempt supplies to be changed to 20% without the agreement of the customer. As soon as a taxpayer is provided with a choice, there is a chance of making the wrong one! Even very slight differences in circumstances may result in a different and potentially unexpected VAT outcome, and it is an unfortunate fact of business life that VAT cannot be ignored.

Why is VAT important?

The fact that the rules are complex, ever-changing, and the amounts involved in property transactions are usually high means that there is an increased risk of making errors. This is increased by the fact that these are often one-off transactions by a business, and in-house, in depth tax knowledge is sometimes absent. Such activities can result in large penalties and interest payments, plus unwanted attentions from VAT inspectors. Uncertainty regarding VAT may affect budgets and an unforeseen VAT bill (and additional SDLT) may risk the profitability of a venture.

Problem areas

Certain transactions tend to create more VAT issues than others. These include;

  • whether a property sale can qualify as a VAT free Transfer Of a Going Concern (TOGC)
  • conversions of properties from commercial to residential use
  • whether to opt to tax (OTT) a commercial property
  • the recovery of VAT charged on a property purchase
  • supplies between landlord and tenants
  • the Capital Goods Scheme (CGS)
  • the anti-avoidance rules
  • mixed developments
  • apportionment of VAT rates
  • changes in number of dwellings in a building(s)
  • changes in intention of use of a building
  • sale of partially completed developments
  • partial exemption
  • charity use
  • non-business use
  • relevant residential use
  • the place of supply (POS) of services
  • holiday lets
  • serviced apartments
  • contracts
  • new build residential
  • DIY Housebuilders
  • tax points (time of supply)
  • HMRC queries
  • deposits
  • and even seemingly straightforward: VAT registration

Additionally, the VAT treatment of building services throws up its own set of VAT complications.

The above are just examples and the list is not exhaustive.

VAT Planning

The usual adage is “right tax, right time”. This, more often than not, means considering the VAT treatment of a transaction well in advance of that transaction taking place. Unfortunately, with VAT there is usually very little planning that can be done after the event. For peace of mind a consultation with a VAT adviser can steer you through the complexities and, if there are issues, to minimise the impact of VAT on a project. Assistance of a VAT adviser is usually crucial if there are any disputes with VAT inspectors. Experience insists that this is an area which HMRC have raised significant revenue from penalties and interest where taxpayers get it wrong.

Don’t leave it to chance!

For more information, please see our Land & Property services

VAT tertiary legislation – HMRC’s new guidance

By   13 May 2024
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HMRC has published new a guide to all information about VAT that has ‘force of law’.

The manual contains all the tertiary legislation for VAT which HMRC has published – all in one place. Primary and secondary legislation is published on Legislation.gov.uk.

What is tertiary legislation?

Within primary and secondary legislation, government departments are sometimes granted the power to publish additional legally binding conditions or directions on a given topic. This information is known as ‘tertiary legislation’.

Tertiary legislation carries ‘force of law’. This means it has the same legal status as primary and secondary legislation. HMRC has an obligation to publish this information in accordance with the law.

The guidance covers:

(with links to the relevant legislation)

 

 

VAT DIY Housebuilders’ Scheme Top 10 Tips

By   9 May 2024
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If you build your own home, there is a scheme available which permits you to recover certain VAT incurred on the construction. This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim. As always with VAT, there are traps and deadlines, so here I have set out the Top Ten Tips.

An in-depth article on the DIY Housebuilders’ Scheme here

It is also possible to claim VAT on the construction of a new charity building, for a charitable or relevant residential purpose.

The following are bullet points to bear in mind if you are building your own house, or advising someone who is:

  1. Understand HMRC definitions early in your planning

Budgeting plays an important part in any building project. Whether VAT you incur may be reclaimed is an important element. In order to establish this, it is essential that your plans meet the definitions for ‘new residential dwelling’ or ‘qualifying conversion’. This will help ensure that your planning application provides the best position for a successful claim. One point to bear in mind, is the requirement for the development to be capable of separate (from an existing property) disposal. 

  1. Do I have to live in the property when complete?

You are permitted to build the property for another relative to live in. The key point is that it will become someone’s home and not sold or rented to a third party. Therefore, you can complete the build and obtain invoices in your name, even if the property is for your elderly mother to live in. However, it is not possible to claim on a granny annexe built in your garden (as above, they are usually not capable of being disposed of independently to the house).

  1. Contractors

Despite the name of the scheme, you are able to use contractors to undertake the work for you. The only difference here will be the VAT rate on their services will vary depending on the nature of the works and materials provided.

  1. What can you claim?

A valid claim can be made on any building materials you purchase and use on the build project. Also, services of conversion charged at the reduced rate can be recovered. However, input tax on professional services such as architect’s fees cannot be reclaimed.

  1. Get the VAT rate right

It is crucial to receive goods and services at the correct rate of VAT.  Services provided on a new construction of a new dwelling will qualify for the zero rate, whereas the reduced rate of 5% will apply for qualifying conversions. If your contractor has charged you 20% where the reduced rate should have been applied, HMRC refuse to refund the VAT and will advise you go back to your supplier to get the error corrected. This is sometimes a problem if your contractor has gone ‘bust’ in the meantime or becomes belligerent. Best to agree the correct VAT treatment up front.

  1. Aid your cash flow

If you wish to purchase goods yourself, it will be beneficial to ask your contractor to buy the goods and combine the value of these with his services of construction. In this way, standard rated goods become zero rated in a new build.  If you incur the VAT on goods, you will have to wait until the end of the project to claim it from HMRC.

  1. Claim on time

The claim form must be submitted within six months of completion of the build, usually this is when the certificate of practical completion is issued, or the building is inhabited. although it can be earlier if the certificate is delayed. More details of when a building is complete here. Recent changes to the scheme here. 

  1. Use the right form

HMRC publish the forms on their website.

Using the correct forms will help avoid delays and errors. Claims can now be made online.

  1. Send everything Recorded Delivery

You are required to send original invoices with the claim. Therefore, take copies of all documents and send the claim by recorded delivery. Unfortunately, experience insists that documents are lost…

  1. Seek Advice

If you are in any doubt, please contact me. Mistakes can be costly, and you only get one chance to make the claim. Oh, and don’t forget that this is VAT, so any errors in a claim may be liable to penalties.

More on the DIY Housebuilders’ Scheme here, here, here, and here and Tribunal cases on claims here, here, and here

VAT: DIY Housebuilder Scheme updated

By   16 April 2024
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HMRC has updated its guidance for DIY Housebuilders.
The scheme enables people who build, or convert properties into dwellings for their own use to recover VAT incurred on the project.
More on the Scheme here.
Information about filling in a schedule of invoices before starting a self-build project has been added. This follows other changes to, and cases on, the Scheme which are set out below:

The following article provides help with Scheme claimants: