Tag Archives: HMRC DIY Scheme

VAT: DIY Housebuilders – relaxation of residency restriction too late for refund

For DIY house builders to be able to recover input VAT from HMRC under Section 35 of the Value Added Tax Act 1994 several conditions must be fulfilled. For one thing statutory planning consent must have been granted and the building must have been constructed in accordance with that consent.

In the First-tier Tribunal (Tax Chamber) case of Akester v Revenue and Customs [2016] the property had been constructed in accordance with the planning permission. However it was being used by the developer in contravention of a residency restriction in that consent at the time HMRC rejected the claim.

The developer had supplied two different dates as to when he occupied the property: the former, 25 March 2015 was in breach of the then planning condition while the latter, 8 October 2015 was after the removal of the condition that prohibited that occupation.

When HMRC refused the developer’s claim for repayment of VAT the requirements of Note 2(c) and (d) of Group 5 of Schedule 8 of the Value Added Tax Act 1994 had not been satisfied.

The legislative requirements were framed in mandatory terms: HMRC were allowed no discretion to accept anything less than a planning permission free of non qualifying residency restrictions, nor could HMRC extend the time limit.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

HMRC DIY Scheme: VAT could not be reclaimed for services

Normally, when a new residential dwelling is under construction, a VAT registered builder or subcontractor must zero-rate their work for VAT purposes and not charge VAT.

The builder or subcontractor must not seek to pass on to the Customer the VAT they have had to pay when they bought materials. They will be able to claim that VAT back at the end of each month, or whatever period they have agreed with HMRC.

To put the private individual in the same position as someone purchasing from a property developer, HMRC’s VAT DIY Housebuilders’ Scheme for new build dwellings (subject to specified exclusions) allows the self building claimant to reclaim VAT on building materials bought for the project and claimants are only entitled to a refund of VAT on those eligible building materials.

Subject to limited exceptions costs related to the supply of services are not eligible for VAT refund under that DIY scheme.

Otherwise there would be a risk of the DIY scheme being abused, as services cannot be as easily identified as materials as being for the construction of a dwellinghouse.

Costs, which are essentially for services, but which form an inherent and inseparable part of the cost of the materials may exceptionally be allowed for VAT reclaim by HMRC.

For example, VAT incurred on delivery charges separately itemised on main invoices for eligible goods rank as part of the value of the goods and can be refunded under the Scheme. On the other hand were such transport or delivery charges to be separately invoiced, they would not be eligible for refund.

In the First-tier Tribunal (Tax) case of Alan Johnson v Revenue & Customs [2014] the Appellant maintained that invoices were eligible for a VAT refund. But amongst others HMRC disallowed invoices amounting to £885.11 for equipment hire, JCB hire, scaffolding tower hire, digger hire, skip hire and disposal of excavated materials.

Applying the above principles, the Appellant’s appeal was dismissed. HMRC’s decision to refuse the Appellant’s VAT refund claim of £885.11 was upheld.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.