Tag Archives: housebuilders

VAT DIY Housebuilders’ Scheme Top 10 Tips

By Marcus Ward 14 September 2018

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

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, and which I have found often produces difficulties, 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 usually 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 recovered.

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. I 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 three 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.

Use the right form

HMRC publish the forms on their website

Using the correct forms will help avoid delays and errors.

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.

VAT Latest from the courts – White Goods claims by housebuilders

By Marcus Ward 27 February 2017

Recovery of input tax on goods included in the sale of a new house.

The recent Upper Tribunal (UT) case of Taylor Wimpey plc considered whether builders of new dwellings are able to recover input tax incurred on certain expenditure on goods supplied with the sale of a new house. We are aware that there are many cases stood behind this hearing and it is understood that the appellant’s claim amounts to circa £60 million alone. Unfortunately, the UT ruled against the appellant.

The rules

Before considering the impact of the case, I thought it worthwhile to look at the rules on this matter.

There is in place a Blocking Order (“Builders’ Block”) which prohibits recovery of input tax on goods which are not “building materials”. In most cases it is simple to determine what building materials are; bricks, mortar, timber etc, but the difficulty comes with items such as white goods (ovens, hobs, washing machines, dishwashers, refrigerators etc) carpets, and similar. So what are the rules?

These are set out in HMRC’s VAT Notice 708 para 13.2

There are five criteria:

The articles are incorporated into the buildings (or its site)
the articles are “ordinarily” incorporated by builders into that type of building
other than kitchen furniture, the articles are not finished or prefabricated furniture, or materials for the construction of fitted furniture
with certain exceptions, the articles are not gas or electrical appliances
the articles are not carpets or carpeting material

To qualify as building materials, goods have to meet all of these criteria

Examples of specific goods are given at VAT Notice 708 para 13.8

The case

Generally, Taylor Wimpey’s argument was that under the VAT law in force at the time of the claim it was entitled to recover the VAT paid on these items and the Builders’ Block did not prevent it from recovering input tax on these goods. The VAT was properly recoverable as it was attributable to the zero rated sale of the house when complete. Taylor Wimpey further contended that if the Builder’s Block did apply, it was unlawful under EU law and should therefore be disapplied. Additionally, there was a challenge on the meaning of “incorporates … in any part of the building or its site” and the meaning of “ordinarily installed by builders as fixtures”.

The Builders’ Block which prevents housebuilders from reclaiming VAT on such goods was challenged on the basis that the UK was not allowed to extend input tax blocks, as it had done in 1984 (white goods) and 1987 (carpets).

The decision

The UT ruled that the block could be extended in relation to supplies which were zero-rated and that the block properly applied to most of appellants’ claim. The UT held that only goods “ordinarily installed” in a house were excepted from the block, but that exception does not cover white goods and fitted carpets supplied since the appropriate rule changes.

Commentary

This ruling was not really a surprise and, unless Taylor Wimpey pursues this further it provides clarity. It demonstrates that technology and the requirements of a modern house purchaser have moved on significantly since the 1970s and 1980s. I doubt many houses built in the 1970s had dishwashers or extractor hoods. The ruling does bear reading from a technical viewpoint as my summary does not go into the full reasons for the decision. If you, or your client have a claim stood behind this case it is obviously not good news as claims for white goods are extremely limited. If you have mistakenly claimed for white or similar goods, it would be prudent to review the position in light of this case. The decision also affects claims via the DIY Housebuilder’s Scheme. Details of this scheme here

New house builds to be subject to 20% VAT?

By Marcus Ward 9 June 2014

Reports that a recently issued EC consultation document is proposing to harmonise VAT rates across Europe thus removing the UK’s zero rate have stirred up something of a hornet’s nest. Clearly, in this delicate (although slowly improving) climate for house builders an additional 20% cost could damage the market irrevocably adding £50,000 to the cost of a £250,000 house. Commentators in the trade have announced that it would be a disaster for new home buyers, the construction sector, and the UK economy in general.

However, are these reports in the national press all that they seem? Or is this another tabloid attack on the EC? Such consultation documents are issued regularly and they consider many aspects of VAT across the EC. An EC spokesman, when questioned about this issue, stated “the consultation was not pre-empting a move and considering VAT ‘in general’” Additionally, a spokesman for the Treasury announced “’The UK government has no intention of agreeing to such a proposal, and there is no consultation to change the zero tax rate”. Historically, UK authorities have fought doggedly to retain all of the UK’s zero rates because once they are removed, it is not possible under EC legislation, to reinstate them. The UK is unique in applying the zero rate to items such as food, new houses, books and newspapers and while it is not possible to widen or extend the scope of the zero rating, the UK is permitted, for the time being, to retain those which are in place. So, is there any truth in these “rumours”? It appears that the report was published by the Daily Mail, which in turn appears to have obtained the story from The Daily Express. Although there is a continuing will to harmonise VAT across the EC, I would be very surprised indeed if the UK was to be forced to standard rate new house builds. My personal view is that there appears to be a little mischief making here and the house building industry has enough to worry about rather than this imposed 20% price hike.

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