HMRC have issued a brief in response to a ruling by the First-tier Tribunal with respect to a claim made under the DIY Housebuilder Scheme. This scheme aims to put DIY builders/converters into broadly the same position to a developer selling zero-rated premises with respect to VAT. Under this scheme, HMRC refund input VAT incurred on goods used in new-build residential construction projects. This applies to goods that would be zero-rated when supplied alongside zero-rated construction services, however VAT cannot be recovered on goods/services which are liable to the standard rate of VAT, such as professional fees. To utilise this scheme to claim back VAT on building materials the following criteria must be satisfied;

 

  • the goods must be used in connection with work which comprises the construction of a building designed as a dwelling, or conversion of a non-residential building into a residence;
  • the use of the building must be for a residential purpose;
  • the individual must be acting in a non-business capacity and constructing a dwelling to be used either by them (or their relatives) as a principal place of residence;
  • the claim must be made within the relevant time constraints and in the appropriate manner – namely within 3 months of the date of completion of the property using the form VAT431NB.

 

The taxpayers in this instance submitted two separate claims in relation to a single property. Despite further works being required, in 2017 an interim claim for approximately £5000 was submitted alongside the local authority’s certificate of valuation – this was included as evidence of completion and, despite this not constituting sufficient evidence for these purposes, the claim was paid. On conclusion of the remaining works in 2019, a further claim was lodged for the remaining VAT alongside the required certificate of completion and, whilst it was clear that the costs forming part of the second claim were distinct from those submitted in 2017, it was rejected by HMRC on the basis that  DIY builders are only permitted to submit one claim in respect of a property building and the claim must be made within 3 months of completion.

 

As part of the hearing, it was determined that the first claim was paid in error by HMRC due to not being submitted alongside the required evidence of completion, with the second claim being submitted within the relevant time limits, i.e., within 3 months of completion of the property, and meeting the relevant evidentiary requirement, with the subsequent claim being in accordance with the relevant legislation accepted. As such the First-Tier Tribunal concluded that the second claim was allowable, with the refund of VAT incurred in the course of constructing the property permitted.

 

Costs incurred in the construction of a home can be substantial and as such it is important to ensure any claim for VAT incurred in the course of constructing a family home is submitted in accordance with the relevant legislation within the specific time limits, to prevent this becoming an irrecoverable cost. If you require assistance in processing a DIY Housebuilders claim or are unsure as to the limitations/requirements of the scheme, please call our free VAT helpline today.

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