Every year we assist clients who are looking at building or converting a home for them or a member of their family to live in. Of all the questions that are asked, and there are usually quite a few, the main question we are asked is whether the VAT incurred on the build or conversion costs can be claimed and what is the process for doing so?
As with all VAT questions, the answer is rarely the same for each scenario, but there are some key points which are sometimes overlooked.
- A VAT DIY new build or conversion claim must be submitted within 3 months of practical completion – it is not a claim as you go process
- The property must not be, or intended to be, used for business purposes
- In order to claim VAT from HMRC the correct rate should be charged by suppliers – HMRC will reject invoices with incorrect VAT rates.
Some of the more complex points refer to the planning permission. HMRC state that the following must apply:
- the dwelling consists of self-contained living accommodation
- there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling
- the separate use of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision
- the separate disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision
- statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent
Over the years, there have been a number of DIY claims which have been taken to Tribunal. These are usually due to certain conditions not being met or HMRC’s strict interpretation of the rules.
Here are a
few brief examples for reference:
In the ‘Franks’ case, planning permission was granted for an extension. However shortly after work began it became clear that the property needed to be demolished and rebuilt. Even though planning permission was later granted for a rebuild, only the VAT costs incurred after the latter permission was granted were recoverable. This case also proves the point that where VAT has been charged in error it is the responsibility of the supplier to correct the position rather than for HMRC to reimburse the customer.
Many cases look at the timing of the claim. The ‘Fraser’ case concluded that the property was completed and moved into two years before a ‘practical completion’ statement was issued. Even though the claim was submitted within 3 months of practical completion the property was habitable and in fact moved into much earlier, making the claim out of time.
In contrast to the ‘Fraser’ case above, in the ‘Bowley’ case, some 19 years had elapsed between the completion of the house and subsequently the garage being completed. Whilst HMRC denied the claim, they were later forced to accept it once it was established that ‘there is no limit to the period of time in which a DIY project can take’. Importantly, in this case the house and garage were part of a single DIY project.
There are many more similar cases to those above and even more when it comes to looking at what are ‘building materials’. This is an important phrase because generally speaking, building materials are eligible for a VAT DIY claim. Non-building materials and most services are specifically excluded from a DIY claim. We often hear the claim that if you could pick the property up and shake it, everything that falls out is non-building materials and you cannot claim the VAT back on them. This is a fairly good description but it leaves a lot to be desired when thinking about integrated white goods and fitted carpets for example, which are not building materials but things that you would hope wouldn’t fall out easily!
The list of building materials and therefore items which VAT can be claimed for is considerable, as is the list of non-building materials. Every care should be taken to make sure the claim is accurate as possible. HMRC can issue penalties for inaccurate claims and will restrict items which are either unclear or unexplained. With all claims we submit a letter accompanying the original invoices, signed claim form and required documents which provides HMRC with further information on any potential concerns.