A&M Tax Advisor Update
HMRC has clarified its position regarding claims made under the DIY Housebuilders Scheme in light of the First-tier Tribunal decision in the case of Andrew Ellis and Jane Bromley  TC08277.
In summary, HMRC has confirmed that no change will be made to its single claim policy under the DIY Housebuilder Scheme. However, where it is agreed that such a claim has already been repaid by HMRC in error, HMRC will accept a subsequent claim if they receive evidence that the claim has been made within 3 months of completion of the building work.
The scheme allows private persons to claim VAT incurred on building material costs associated with the construction of their own homes (which must be separate and self-contained, for the person or their family to live or holiday in and not for business purposes) or the conversion of non-residential buildings (i.e. those not lived in for at least 10 years) into their own homes. The scheme (under section 35 VATAct 1994) therefore ensures that private persons are put in the same position as developers who are typically able to recover the VAT they incur on construction costs through their VAT returns where they make an onward zero rated supply of new residential dwellings.
VAT refunds can also be obtained under the scheme if the building is for either non-business purposes (one room can be used as a work from home office), charitable purposes (e.g. as a hospice) or residential purposes (e.g. a children’s home).
The scheme allows housebuilders to submit a single claim within 3 months of completion of the building works using either form VAT431NB (for new builds) or VAT431C (for conversions). Original invoices (addressed to the person) must be included with the claim together with a copy of the building regulation completion certificate, building plans and evidence of planning permission. For conversions, proof of the building not having been lived in for at least 10 years before the commencement of the work is required.
VAT on various goods (building materials) can be claimed under the DIY Housebuilders Scheme – as set out in detail in HMRC’s guidance. However, VAT recovery on some goods is specifically disallowed (e.g. washing machines/kitchen appliances, carpets, fitted furniture, garden furniture, scaffolding, roller blinds/curtains, CCTV systems, audio equipment, awnings, hire of machinery).
VAT on services can only be claimed in relation to conversions as services related to a new build residential property should be zero rated. However, VAT on professional or supervisory fees such as architects fees are specifically excluded.
The appellants in the case built a house over a number of years during which the work was carried out intermittently. In order to assist with cash flow, two DIY housebuilder claims were submitted to HMRC. HMRC repaid the first (interim) claim following its acceptance of the valuation used for Council Tax purposes as evidence of completion has taken place. Once planning permission was then granted by the Local Planning Authority for further required works, a second claim was submitted to HMRC. This was rejected by HMRC on the basis that the claim was out of time and that an earlier valid claim had already been made and repaid.
The Tribunal decided that the evidence from the Valuation Office was not valid proof of completion and that HMRC should not have accepted this first claim, which had therefore been paid by HMRC in error. Consequently, HMRC should have allowed the second claim which was not outside the required 3 month time limit.
HMRC has confirmed that its policy remains the same and that only a single claim is allowed under the DIY Housebuilder’s Scheme. However, in similar cases where HMRC repays a claim in error, a subsequent claim will be accepted if evidence is provided that the claim has been made within the required 3 months of completion of the building works.
Supplementary claims will continue to be accepted on a case by case basis. For example, in cases where invoices for works performed before submission of the claim have been mistakenly omitted or received late from contractors.
This will be of interest to private persons either constructing their own homes or converting non-residential buildings into their own homes, or to persons building charitable purpose communal residences (e.g. hospices or children’s homes).
DIY Housebuilder Scheme claims frequently create issues for claimants, both in terms of obtaining the relevant supporting evidence and making the claims within the required timescales. Given HMRC’s very strict 3 month requirement for submitting such claims, it is important to ensure that the timing of completion of the building works is continually monitored and the relevant supporting evidence obtained so that a single claim is submitted within the 3 month deadline. If the deadline is missed, the VAT claim will be out of time altogether and any VAT incurred will be an irrecoverable cost, which can be significant in value.
If you would like us to advise you further regarding such claims or if you have any questions regarding your own situation, please contact us or your usual A&M VAT adviser.
Revenue and Customs brief 8 (2022): Single DIY Claim — First-tier Tribunal Andrew Ellis and Jane Bromley
Claim a VAT refund if you build new houses on a DIY basis
Goods and services you can claim for under the VAT DIY Scheme