Category Archives: VAT Non-busines

VAT DIY Housebuilders’ Scheme Top 10 Tips

By Marcus Ward 9 May 2024

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:

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.

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).

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.

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.

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.

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.

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.

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.

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…

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 Road Fuel Scale Charges from 1 May 2024

By Marcus Ward 22 April 2024

HMRC has issued its 1 May 2024 to 30 April 2025 Road Fuel Scale Charges (RFSC)

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

VAT: DIY Housebuilder Scheme updated

By Marcus Ward 16 April 2024

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.

VAT and influencers

By Marcus Ward 14 March 2024

A Warning

There has been a great deal of debate on the subject of VAT and influencers, with HMRC issuing assessments for underdeclared output tax on “gifts” received by them.

What is an influencer?

An influencer is someone who has certain power to affect the purchasing decisions of others because of their; authority, knowledge, position, or relationship with their audience. These individuals are social relationship assets with which brands can collaborate to achieve their marketing objectives.

In recent years the growth of social media means that influencers have grown in importance. According to recent statistics, the projected number of global social media users in 2023 was 4.89 billion. This is a 6.5% rise from the previous year.

What is the VAT issue?

Business gifts to influencers

A business is not required to account for VAT on certain dealings if they meet certain conditions. For free gifts, the condition is that the total cost of all gifts to the same person is less than £50 in a 12-month period. Further, if the goods are “free samples” – used for marketing purposes and provided in a quantity that lets potential customers test the product, then the £50 rule does not apply. If an influencer receives free gifts or samples, there are no VAT implications for them.

HMRC Action

However, we understand that HMRC has decided that, in the majority of cases, the supply of goods to influencers were not ‘free gifts” but rather consideration for a taxable supply of marketing or advertising. They were also not considered free samples as, generally, influencers would not be in the position to test the goods, having no expertise in the field. It is also concluded that influencers, in most cases were “in business“.

The payment for the marketing, promotion or advertising services (the VAT treatment is similar, regardless of how the services are categorised) is by way of the supply of goods, rather than monetary consideration. That is; consideration is flowing in both directions. Consequently, output tax is due on this amount if the influencer is, or should be, VAT registered.

What is the value of the supply?

Non-monetary consideration

Non-monetary consideration includes goods or services supplied as payment, for example in a “barter” (including part exchange) agreement. If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration. Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply is deemed to be for such part of the consideration as is properly attributable to it.

In determining the taxable amount, the only advantages received by a supplier that are relevant are those obtained in return for making the supply should be recognised. Non-monetary consideration has the value of the alternative monetary payment that would normally have been given for the supply.

VAT Registration

If an influencer receives gifts valued at over £90,000 in any 12-month period, or these gifts plus other monetary consideration, VAT registration is mandatory.

VAT: Input tax claim on Land Rovers. The Three Shires Trailers case

By Marcus Ward 9 February 2024

Latest from the courts

In the Three Shires Trailers Limited First Tier Tribunal (FTT) case the issues were whether an input tax claim on the purchase of two Land Rover Discoveries was appropriate when they were converted from commercial vehicles to cars, or was a self-supply triggered?

Background

The vehicles were commercial vehicles when purchased and input tax was recovered. Subsequently, they were converted by the addition of three fold up seats with seat belts behind the driver seat and removing materials which had blacked out the rear windows which reclassified them as cars. This would have subjected them to an input tax block if purchased in that state.

The purpose of buying the vehicles was for the transport of trailers to customers, the collection of trailers from suppliers and to enable personnel of the appellant to attend trade fairs all over the country.

Technical

“A Motor Car” is defined as:

“any motor vehicle of a kind used on public roads which has three or more wheels and either:

(a) is constructed or adapted solely or mainly for the carriage of passengers; or

(b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows…”

Issues

The appellant stated that the vehicles were used only for business purposes. Employees were not permitted to use the vehicles for private purposes and did not do so. The vehicles were kept at the business’s premises. He also explained that the vehicles were not converted to cars, if they were cars, they were qualifying cars and if they were non-qualifying cars, the use was only temporary, and they were converted back to commercial vehicles.

Initially, HMRC disallowed the claim because the vehicles became cars and subject to the input tax block.

Subsequently, HMRC’s case was that the vehicles had been converted from commercial vehicles to non-qualifying cars which triggers an irreversible self-supply under Article 5 of the Value Added Tax (Cars) Order 1992 so output tax equalling the claimed input tax was due.

Decision

The FTT decided that, at the time when the vehicles were acquired, they were indisputably commercial vehicles and the appellant was entitled to deduct the input tax on them.

The judge found that, after conversion, the vehicles were intended for use, and were used, only for business purposes. The appellant did not intend that the vehicles should be used for private purposes and so far as he was aware, there was no private use. The vehicles were therefore qualifying motor vehicles eligible for input VAT recovery. No output tax was due on a self-supply.

The appeal was allowed.

Commentary

Another case on the recovery of input tax on car purchases and the difference between commercial vehicles and cars. It is notoriously difficult to persuade HMRC that there is no private use of cars, but it is possible.

VAT reliefs for charities – A brief guide

By Marcus Ward 24 October 2023

Charities and Not For Profit (NFP) entities – A list of VAT reliefs in one place

Unfortunately, there is no “general” rule that charities are relieved of the burden of VAT.

In fact, charities have to contend with VAT in much the same way as any business. However, because of the nature of a charity’s activities, VAT is not usually neutral and often becomes an additional cost. VAT for charities often creates complex and time consuming technical issues which a “normal” business does not have to consider.

There are only a relatively limited number of zero rated reliefs specifically for charities and not for profit bodies, so it is important that these are taken advantage of. These are broadly:

advertising services* received by charities
purchase of qualifying goods for medical research, treatment or diagnosis
new buildings constructed for residential or non-business charitable activities
self-contained annexes constructed for non-business charitable activities
building work to provide disabled access in certain circumstances
building work to provide washrooms and lavatories for disabled persons
supplies of certain equipment designed to provide relief for disabled or chronically sick persons

* HMRC have set out its views on digital/online advertising in Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief.

There are also special exemptions applicable to supplies made by charities:

income from fundraising events
admissions to certain cultural events and premises
relief from “Options to Tax” on the lease and acquisition of buildings put to non-business use
membership subscriptions to certain public interest bodies and philanthropic associations
sports facilities provided by non-profit making bodies

Although treating certain income as exempt from VAT may seem attractive to a charity, it nearly always creates an additional cost as a result of the amount of input tax which may be claimed being restricted. Partial exemption is a complex area of the tax, as are calculations on business/non-business activities which fundamentally affect a charity’s VAT position.

The reduced VAT rate (5%) is also available for charities in certain circumstances:

gas and electricity in premises used for residential or non-business use by a charity
renovation work on dwellings that have been unoccupied for over two years
conversion work on dwellings to create new dwellings or change the number of dwellings in a building
installation of mobility aids for persons aged over 60

Additionally, there are certain Extra Statutory Concessions (*ESCs) which benefit charities. These zero rate supplies made to charities, these are:

certain printed stationery used for appeals
collection boxes and receptacles
lapel stickers and similar tokens, eg; remembrance day poppies

* ESCs are formal, published concessions but have no legal force.

We strongly advise that any charity seeks assistance on dealing with VAT to ensure that no more tax than necessary is paid and that penalties are avoided. Charities have an important role in the world, and it is unfair that VAT should represent such a burden and cost to them.

VAT: Updated guidance for medical professionals

By Marcus Ward 2 October 2023

HMRC has updated VAT Notice 701/57 – Health professionals and pharmaceutical products.

The changes, in summary, are:

Para 2.1 – Pharmacy technicians (only in England, Scotland and Wales) has been added to the meaning of a health professional list.

Para 2.5 – Services directly supervised by a pharmacist has been removed: Services that are not exempt from VAT.

Para 4.7 has been updated to make it clear when forensic physicians services are exempt healthcare.

Para 5.2 – Services supervised by pharmacists are now included when referring to a health professional: Exemption of care services performed by a person not enrolled on a statutory medical register.

The exemptions covered in the health and welfare area are complex and even slight differences in circumstances can change the VAT liability of a supply. Additionally, there are further exemptions for charities and NFP bodies and the age-old issue of business/non-business.

We advise that specialist advice is sought when considering the VAT position of supplies in this area.

VAT: Difficulties with DIY Housebuilders’ claim – The Spani case

By Marcus Ward 18 September 2023

Latest from the courts

In the First Tier Tribunal (FTT) case of Spani v HMRC [2023] UKFTT 00727 (TC) the issue was whether a claim under the DIY Housebuilders’ Scheme (the scheme) was valid.

Mr Spani appealed against HMRC’s decision to refuse a claim. It was rejected as the respondents concluded that the property was to be used for business purposes because Planning Permission was for a holiday let rather than residential own use. To claim under the scheme, the relevant the property must be used “otherwise than in the course of furtherance of business” – VAT Act 1994, section 35)

Background

The cottage was constructed in Seaford – within the Souths Down National Park and, in order to obtain planning consent, it was required to be made available for letting on a commercial basis for 140 days a year. The appellant contended that it was his primary residence in the UK and any letting (which was interrupted by covid in any case) was/would be incidental to this primary purpose.

The property was listed on Air BnB in order to satisfy the requirements of the planning consent, but the property had not been actively marketed and no lettings had taken place.

Mr Spani contended that the use of the cottage “falls far short of the HMRC’s position that it was the appellant’s intention to use the property for a wholly commercial purpose”. It was simply the appellant’s home in the UK and that an identical property built outside the National Park would not have the Planning Permission holiday let requirement.

Further, if it was a commercial enterprise, Mr Spani could have could have used another reclaim route, viz: registering for VAT and recovering an element of the input tax incurred.

Decision

The appeal was dismissed – The judge opined that “none of these events subsequent to the grant of the Planning Permission and completion certificate detract from the fact that the property was built to be a holiday let (as stipulated by the planning consent) and was therefore constructed in furtherance of a FHL* business”.

Additionally, the FTT stated that: it is plain that the appellant’s plan to live in the property within the FHL regulations does not (and cannot) alter the property into a dwelling… when there is the express prohibition placed on the property to be a dwelling.

The conclusion was that the property was built in furtherance of a business which prohibited a claim.

Commentary

Yet another case highlighting precise requirements of a claim under the scheme and HMRC’s strict application of the rules. Care must always be taken in such cases and we advise professional advice is sought prior to a submission of a claim.

More on similar cases here and here and Top Ten Tips for the scheme.

* Furnished Holiday Let

VAT: Business or non-business? The 3D Crowd CIC case

By Marcus Ward 4 July 2023

Latest from the courts

Business or non-business?

In the First-Tier Tribunal (FTT) case of 3D Crowd CIC (3D) the issue was whether a donation of goods, with a subsequent intention to sell similar goods constituted a business activity such that input tax incurred in relation to it was recoverable.

Background

3D was formed at the beginning of the Covid 19 pandemic to produce face protection via the process of 3D printing. Such protection was in high demand, but there was a shortage of suitable products for healthcare workers. The appellant produced 130,000 face shields in the first six weeks of production; which was an admirable feat. However, it was not possible to sell this equipment without the appropriate accreditation. Consequently, to alleviate demand, 3D donated the PPE to the NHS.

By the time accreditation was given the demand for PPE had reduced so it was not possible to sell the 3D printed face coverings as initially intended.

Technical

The issue of business versus non-business has been a contentious issue in the VAT world from day one. This classification is important for two reasons. If an activity is a business (an economic activity) it could be subject to VAT and, as in this case, if an activity is non-business there is usually a restriction of input tax.

Contentions

3D said that input tax could be recovered on costs which involved no direct onward supply of goods or services, but which laid the groundwork for them. That is, the input tax could be attributed to an intended taxable supply, even though that intention was not fulfilled by circumstances outside its control.

HMRC argued that per Longbridge the correct test for determining whether an activity is a business activity is whether there is a direct link between the services or goods supplied and a payment received by the supplier. In this case, there was not so no input tax was reclaimable. HMRC also referred to the decision in Wakefield College, supporting the proposition that an activity is only a business activity if it results in the supply of goods or services for a consideration.

Decision

The FTT found that the VAT incurred on supplies made to 3D, constituted elements:

in connection with 3D seeking CE certification
related to general overheads
related to VAT incurred on materials bought to produce the PPE

Input tax incurred on the costs of accreditation is recoverable because these were incurred in order to sell PPE in the future and for no other purpose. The fact that these costs are not linked to a particular supply (and is in the nature of preparing the ground for future supplies) was irrelevant per The VAT Act 1994, Schedule 1, para 10.

The VAT incurred on the general overhead costs and on the costs of producing the PPE was incurred in part for business purposes and party for non-business (donations) and should be apportioned using a method agreed between 3D and HMRC.

Commentary

Another case highlighting the difficulty in identifying the distinction between business and non-business and the complexity of input tax attribution. The altruistic efforts of the CIC is to be admired, but such charitable (in the broad sense) activities do not always get their just reward in VAT terms.