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The government’s DIY Housebuilders’ Scheme is a special refund programme that provides refunds on any VAT incurred on the costs of residential constructions or conversions undertaken on a DIY basis.

This scheme aims to put DIY house builders into a similar position to developers selling zero-rated residential property, in order to incentivise DIY construction projects. However, the rules for qualifying for these refunds must be followed closely in order to avoid falling foul of HM Revenue & Customs.

A First-Tier Tribunal case has recently demonstrated the potential pitfalls of failing to follow these rules, and underlines the importance of seeking guidance on VAT regulations when in doubt.

How a VAT refund claim can be invalidated

The case was brought to the First-Tier Tribunal after the housebuilder in question had claimed a VAT refund under the DIY Housebuilders Scheme. They were refused by HMRC on the basis that the building works undertaken were “unlawful”, as statutory planning consent had not been granted in respect of the dwelling.

One of the conditions defined in the legislation regarding this scheme states that for a VAT refund claim to be considered valid, it must relate to work that has been carried out lawfully. As such, the necessary planning permission must be obtained before the works commence to facilitate a valid claim, and therefore a retrospective application for planning permission cannot be accepted.

As a result of this, the First-Tier Tribunal dismissed the appellant’s case, as all the conditions required for a DIY housebuilders’ refund claim to be valid had not been satisfied.

The lesson for businesses

The negative outcome of this case for the housebuilder in question demonstrates the potentially serious financial consequences of failing to fully understand the rules of VAT relief schemes like this before applying.

As such, if you are involved in the DIY construction or conversion of a residential property and think you may be eligible to use this scheme, it is essential to first confirm that you have met all of the conditions that need to be satisfied.

To make sure you are able to take full advantage of the benefits of the DIY Housebuilders’ Scheme, please consult the official GOV.UK information. For more tailored advice on how to ensure you are complying with the rules of the scheme, call our free VAT helpline on 0333 3638 012, or visit our Land and Property Development page.

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