Tag Archives: new-build

VAT: When is the building of a house complete? (And why is it important?)

By Marcus Ward 11 June 2019

Completion of a residential dwelling

A technical point which comes up surprisingly often and seems innocuous is: when is a building “complete”? The following case is helpful, and I thank Les Howard for bringing it to my attention.

The date that the construction of a dwelling is deemed to be complete is important for a number of reasons. The issue in the case of Mr and Mrs James was whether certain works could be zero rated via the VAT Act Schedule 8 Group 5 Item 2 (The supply in the course of the construction of a building designed as a dwelling…) or as HMRC contended, they were the reconstruction or alteration of an existing building and the work should be standard rated.

Background

The James used a contractor to plaster the entire interior of their house in the course of its construction. However, the work was demonstrably defective to such an extent that the James commenced legal proceedings. A surveyor advised that all of the old plaster needed to be hacked off and replaced by new plastering installed by a new firm. The stripping out and replacement works took place after the Certificate of Completion had been issued.

The James claimed input tax on the house construction via the DIY Housebuilders’ Scheme.

Technical

HMRC refused the James’ claim to have the remedial work zero-rated because, in their view, the re-plastering works amounted to the reconstruction or alteration of the house which was, when the supplies were made, an “existing building”. They proffered Note 16 of Schedule 5 which provides that “the construction of a building” does not include “(a) … the conversion, reconstruction or alteration of an existing building”.

They stated that zero-rating only applied if the work formed part of the construction of a zero-rated building. They had previously decided that the work of snagging or correction of faults carried out after the building had been completed could only be zero-rated if it was carried out by the original contractors and correction of faults formed part of the building contract. When the snagging is carried out by a different contractor, the work is to an existing building and does not qualify for zero rating.

The James stated that the Customs’ guidelines on snagging do not take into account extraordinary circumstances. Their contention was that the re-plastering works were zero rated because they had no choice but to engage the services of a different contractor other than the one who carried out the original works.

Decision

The judge found for the appellant – the re-plastering works were zero rated.

There was a query as to why The James applied for a Certificate of Completion before the plastering was completed. In nearly all cases such a certificate would crystallise the date the building was complete.

The reasons were given as:

the need for funds. The James could not remortgage the house without the certificate and they needed to borrow a substantial amount
they could not reclaim VAT under the DIY Housebuilders’ Scheme until the Certificate of Completion had been issued
they were aware that the building inspector was beginning to wonder why the building works were taking such a long time
they needed the house assessed for Council Tax which could only happen when the certificate had been issued
the Certificate was issued as part of the procedure required by the Building Act 1984 and the Building Regulations of 2000

These reasons were accepted by the judge.

Despite the respondents stating that:

for the reasons given above
the fact that the James had been living in the house for some time
they had obtained the Certificate of Completion
the new plastering work had been done by the new plasterer such that the house had been constructed before supply of the new plasterer’s services had been made
the house was an “existing building”

the judge was satisfied that in the circumstances the new plastering work was supplied in the course of the construction of the building as a dwelling house and that there was no reconstruction or alteration of an existing building in the sense contemplated by Note (16) to Group 5 Schedule 8.

He observed that the Certificate of Completion records that the substantive requirements of the Building Regulations have been satisfied. But to the naked eye the old plasterwork was obviously inadequate and dangerous ad he could not possibly consider that the construction project had finished until the new plasterwork was installed. The James’ construction project was to build a new dwelling house. Plasterwork of an acceptable standard was an integral part of the construction works. The new plasterwork was done at the earliest practicable opportunity.

Commentary

Care should be taken when considering when the completion of a house build takes place. There are time limits for DIY Housebuilders’ Scheme clams and clearly, as this case illustrates, usually work done to a house after completion does not qualify for zero rating. So, if the owner of a house is thinking of, say, building a conservatory for example, it is more prudent in VAT terms to construct it at the same time as a new house is built, and certainly before completion.

I would say that the appellant in this case achieved a surprisingly good result.

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

VAT liability of a dwelling formed from more than one building

By Marcus Ward 6 September 2016

HMRC has issued a policy paper: Revenue and Customs Brief 13(2016)

This brief explains the change in policy relating to the treatment of dwellings that have been formed from either the construction of new buildings, or from the conversion of non-residential buildings into a dwelling. HMRC now accepts that single dwellings can be formed from more than one building.

Please contact us if this change affects you in relation to current, or past developments.

VAT on residential developments

By Marcus Ward 20 February 2015

Should work on existing residential property have the same VAT treatment as new build housing?

The UK cannot create a new zero rate, however, should, say, the reduced rate apply to extensions/redevelopment?

And if so, where should the line be drawn?

Article from Property Week here