For a residential developer buying building materials incurs VAT, usually at 20%. If the developer intends to sell a major interest in the finished properties then this VAT should be reclaimable.
The DIY House Builders' Scheme (“DIY scheme”) was designed to put individuals on the same footing as a property developer when it came to VAT.
A couple had bought a house and got planning permission to have it demolished and a new house built. The couple had to live in a mobile home on the site. After a while there were complaints about the mobile home by neighbours so the council visited what was little more than a shell to give it a valuation for council tax purposes, to enable the couple to legally inhabit the property (even though it was unfinished with bare walls and heating only in certain parts of the property, etc.).
The couple put in a DIY scheme claim in 2017 which was verified and paid by HMRC.
In 2019 they put in a further claim (the property was still unfinished). HMRC rejected this claim as they said that the DIY scheme only allowed for one claim to be made within three months of the works being complete.
HMRC used the way in which the legislation and their own guidance was written as their defence.
The Tribunal said that the law had been written in the singular for clarity rather than imply only one claim was possible. That the guidance stated only one claim was possible had no impact.
The issue of fiscal neutrality was raised. As the claimants pointed out, throughout a development project the VAT registered business submits several VAT returns reclaiming the VAT incurred on building materials, using the refunds to finance the project. To limit an individual to one claim at the end of the project was clearly against the principles of fiscal neutrality.
The Tribunal agreed. The Tribunal also noted that the valuation by the local authority was not evidence of the project being completed so, to use HMRC’s arguments, the 2017 claim should not have been paid either (this issue was not put before the Tribunal).
So it seems that the house builder can now make claims before the works are completed to assist with costs of the on-going project. HMRC holds all the cards here. As a First Tier case it doesn’t set a precedent and may reject similar claims, but the issue of fiscal neutrality is a keystone of VAT so is likely to be raised again if they do.
Whilst we’re here
HMRC have updated their guidance for the DIY House Builders' Scheme. From early October 2021 window blinds and shutters qualify as building materials and as such the purchase of these can now be included in a DIY reclaim.
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