At CVC we deal with all aspects of VAT, working with large multi-national businesses, accounting professionals and OMB’s. Additionally, we work with private individuals dealing with VAT on a one-off transaction, in particular property conversions or new builds.
Most businesses recognise the benefits of engaging professionals at an early stage of a large project to minimise the risk of VAT complications. This often fails to happen when individuals are building a new house or converting a property.
Perhaps it is the very nature of the ‘DIY’ builder that prevents those individuals seeking VAT advice in the planning stages of a project. These are people who are capable of building their dream home from scratch or by converting often crumbling properties to dwellings. They have vision and determination and are often managing very tight budgets. There is clear guidance from HMRC on its website on how to submit a claim. I am sure many a self-builder asks ‘Why would I pay someone to prepare a claim when I can do it just as well?” A key factor is that often people who do not deal with HMRC regularly have no concept of just how rigid HMRC can be. HMRC often complains about taxpayers who rely on the letter of the law to circumvent its intention (tax avoiders). However, in any situation in which the letter of the law works against the taxpayer HMRC always takes the view that it is legally obliged to apply VAT law strictly without regard to whether that delivers a fair outcome.
A ‘DIY’ builder would recognise that although placing one brick on top of another is not complex in itself, if the walls of the new house are built by someone with no training, expertise or understanding of underlying pitfalls there is a good chance the house won’t stand the scrutiny of the building inspector, assuming it remains standing long enough to be inspected! The same principles apply to preparing and submitting a DIY Housebuilder claim.
It is not too difficult to gather invoices and schedule them on a spreadsheet, quickly fill in the necessary claim form with the bank details, sign it and pop it in the post and await the refund; but will the claim withstand the scrutiny of HMRC? There are many issues to address when considering if a DIY claim is valid. These include:
- Considering if in fact the project qualifies for a claim.
- Ensuring all invoices are correctly addressed, are proper tax invoices, that VAT has been charged at the correct rate and that any corrections required are carried out before the claim is submitted.
- Ensuring items on which VAT is being claimed are allowed as part of a DIY claim.
A claim must be submitted within 3 months of completion of the build. If an adviser is only involved at the point the build is complete this makes it very difficult to address all the potential issues before submission, especially if there are questions over the claim’s validity or if invoices need to be reissued by suppliers to correct VAT rates.
Ideally, we would be involved when the project begins, even before a planning application is made. At that point we can assess if a claim can be made and, or if, there are any quirks in the project that would be a barrier to a claim. HMRC will not assess the position by saying “Quite obviously it’s a new house you can have your money back.” It will evaluate the work, the planning permissions and the statutory definitions and decide whether a claim is technically valid.
The most common obstacles to a claim are that the property in question does not meet the definition of a “new” build (where any part of an existing building is being retained) or the property is not “a dwelling” because a covenant or similar restriction exists in relation to its separate use or disposal. It is not pleasant to find out that an anticipated refund will not be paid, particularly if the rejection results from a point that might have been addressed when planning permission was sought. For example, some walls of a pre-existing dwelling were retained during the build and were not demolished until the build was completed, a problem that could have been highlighted before building started. It is also worth keeping in mind that where a claim is rejected (or partly rejected) a penalty of up to 30% of the rejected sum may apply if HMRC considers it was made carelessly. A penalty based on a sum that has been requested but was not paid out really does add insult to injury!
Throughout the build CVC will monitor invoices, addressing issues as they arise. This means that at the end of the project a claim can be submitted promptly.
Building your own house can be a stressful and expensive process. CVC can take the pressure off submitting the claim. Spreading the cost over the course of a build by regular submission of invoices to us makes this an affordable option.
Take the same care over this important aspect of the build as you would in building the walls and that high-spec kitchen could be paid for with a VAT refund.
Please contact Helen Carey if you would like to discuss the VAT refund scheme for DIY housebuilders and how CVC could assist with your VAT claim.