Taxpayers are likely to encounter problems obtaining a valid completion certificate from the Local Authority whilst social distancing measures continue to be enforced to help stop the spread of COVID-19. HMRC is maintaining its policy that a completion certificate is not essential to make a claim and it will accept other, alternative evidence of the building being complete. This means that taxpayers will need to consider what other evidence they may use to support their DIY claim in order to submit it within the strict 3 month time frame. Contact Constable VAT to discuss your potential options, do not delay submitting your claim if you are living in a completed property and are unable to obtain a completion certificate at this time.
When is a DIY Housebuilder claim “late”?
A special VAT Refund Scheme allows DIY housebuilders and people converting non-residential buildings into dwellings to reclaim VAT incurred on construction or conversion costs. This scheme is available when the building will be used for a non-business purpose. Constable VAT can advise on alternative options where a building is intended for business use. More information on the scheme can be found here.
This blog considers a recent trend in Tribunal cases where HMRC is refusing claims on the basis that they are “late”.
Claims must be completed and submitted within a strict time limit and this can be difficult to achieve when combined with the other challenges a self-build or conversion offers. A claim must be submitted within three months of completion of the project. However, the question of when a building is “complete” for VAT purposes is increasingly raised before the Tribunals and, HMRC is often challenging claims where the building is occupied more than three months before a claim is submitted, on the basis that the building was ‘complete’ at the time of occupation.
Constable VAT has assisted DIY builders who have had claims rejected and can help by drafting letters to HMRC and appealing decisions to Tribunal.
Some cases are not made public and so are not discussed in this blog; however, the following cases give a flavour of the issues arising.
This appeal concerned a DIY Housebuilder’s claim for a refund of VAT made by Liam Dunbar who constructed a property and submitted a claim for repayment within three months from receiving a certificate of completion. Although the claim was submitted within the three-month time limit, HMRC rejected the claim on the basis that the house had been completed more than three months before receiving the claim and that the date of the certificate should be ignored. The background facts of this case are as follows.
In June 2017, the architect confirmed that the property was complete, so Mr Dunbar contacted the HMRC helpline to ask for guidance about making a refund claim for the VAT incurred whilst developing the new property. HMRC informed Mr Dunbar that he should wait until he had a formal certificate of completion and that the claim must be made within three months of that date. Following the receipt of a certificate of completion on 19 February 2018, Mr Dunbar sent his claim to HMRC on 8 May 2018 and it was received by HMRC on 15 May 2018; the claim was within the three-month time period after receiving the certificate of completion.
However, HMRC denied the claim on the grounds that the building had been complete for more than three months and argued that “completion”, for the purposes of the DIY Housebuilder Scheme, needs to be considered on a case-by-case basis. It was asserted that electricity was connected on 26 March 2017 and that this was the date of practical completion. In support of this, HMRC submitted that Mr Dunbar moved into the property in March 2017.
The Tribunal considered that the question which needed to be answered was “what is meant by the phrase “the completion of the building” in the VAT regulations relating to these claims. It was stressed that it could not be made clearer by the regulations that the certificate of completion is the primary evidence needed to support a refund claim. Regulation 201(b) requires the taxpayer to furnish HMRC with a “certificate of completion obtained from a Local Authority or such other documentary evidence of completion of the building as is satisfactory to the Commissioners”.
The conclusion of the Tribunal was that, for the purposes of a VAT DIY Housebuilder refund claim, the completion of a building takes place when a certificate of completion is issued or, if there is no certificate issued, on such other date as may be evidenced by documents produced to HMRC by the taxpayer. The appeal was allowed and the refund was paid to Mr Dunbar.
The Tribunal commented in this case that if, as HMRC contend, the date of completion depends on all the facts of the case, it would be almost impossible for the taxpayer to be sure when completion had taken place. Although in other areas of VAT law the date of completion may be given a different meaning, in the context of the DIY Housebuilder’s Scheme, this decision states that the date of the certificate is the date of completion. Unfortunately, this is only a First Tier Tribunal decision and does not set a wider precedent.
This appeal also considers the definition of “completion” for the purposes of the DIY Housebuilder Scheme. In 2007, Mr Farquharson obtained planning permission to construct his own home. Mr Farquharson moved into a rented property whilst the work was carried out to construct his new home. However, at a later date, he moved into the garage of his new home which had been converted into a flat.
For several years, works continued on the property, as and when funds allowed, until May 2012 when Mr Farquharson was made redundant. After some years of being self-employed, it was necessary for him to sell the property before it was completed in order to raise funds. The property was marketed as incomplete, as an opportunity for someone to put their stamp on a partially complete building.
Mr Farquharson’s solicitors advised him that, in order to sell the property, a certificate of completion would be required. To this end, he obtained such a certificate on 26 May 2017. On 7 August 2017, a date within the three-month time limit, Mr Farquharson submitted a claim for the refund of input VAT incurred on the construction of the property. Despite this, HMRC rejected the claim on the grounds that the claim which was submitted was outside the three-month time period and referred him to their internal guidance, VCONST02530.
Mr Farquharson appealed against this decision on the grounds that he had complied with every known requirement; provided a certificate of completion, applied within three months and only made one claim. He noted that there is no reference to VATCONST02530 on either the claim form or the accompanying notes and that it does not appear on google unless you specifically search for it as “VCONST02530” or are familiar with, and are good at navigating, HMRC’s internal guidance. He asserted that it is unreasonable to expect a layperson to be aware of this document, and in any light, he had complied with the conditions in the Regulation.
HMRC argued that the building was completed in December 2008, when Mr Farquharson first occupied the garage.
The Tribunal considered the definition of “completion” for the purposes of the DIY Scheme and concluded that “…the stipulation could not be clearer; it is either by way of ‘a certificate of completion obtained from a local authority’ or by alternative documentation as specified in the guidance notes. The proof of ‘completion’ for the purposes of reg 201is by way of documentation, and documentation alone.”
The Tribunal stated that there is nothing within the Regulations which states that occupation should, or ever could, be regarded as completion. The date of occupation, or the date of last purchases are not provided as possible alternative points of completion in the statute, not to mention that these are facts that need to be established by evidence that has no reference in the statute whatsoever.
Therefore, the Tribunal held in favour of Mr Farquharson and allowed the appeal, clarifying that the VAT refund claim, made on 7 August 2017, was made within the three-month time limit. Again, unfortunately, this decision does not set a precedent.
Similarly, this case concerned Neil Proffitt who had constructed a property and sought to recover input VAT incurred on the project through the DIY Housebuilder’s VAT Refund Scheme. HMRC refused his claim for recovery.
Mr Proffitt obtained planning permission in 1998 to erect a detached dwelling and double garage. Initially, Mr Proffitt did not have sufficient funds to carry out the complete build, so he and his wife continued to work full time and worked on the property where possible. This continued and, in 2010, Mr Proffitt attended a VAT seminar where he received advice regarding making DIY claims. He understood from the advice that he had unlimited time to complete his home but that it was essential that a Completion Certificate should be provided to HMRC along with the claim itself.
Mr Proffitt and his wife were evicted from their main residence in 2010 and moved into the incomplete property. After speaking to the local council, they were informed that a Completion Certificate could not be issued until further specified works had been completed. Between 2010 and 2017, various works were carried out to the property until a Completion Certificate was issued on 9 February 2018, following the receipt of a Gas Safe Certificate. Mr Proffitt submitted the claim to HMRC on 27 March 2018; well within the three-month time period for submitting a claim. Following discussion with HMRC, the claim was formally rejected in September 2018 on the grounds that the claim was out of time as the building had been habitable for some time, 2016 at the latest, judging from the schedule of construction works. Mr Proffitt appealed against this decision as there is no reference in the VAT Regulations relating to the scheme to the building being habitable, but the Completion Certificate is highlighted as evidence required for a claim unless other evidence is available that the building is complete.
The Tribunal considered a wide selection of case law on the subject which highlights the frustrating nature of this point of law; there is case law to support both the taxpayer and HMRC’s arguments, but none of it is binding as it is all related to First Tier Tribunal decisions. Some previous decisions suggest that a building is “complete” for the purposes of the scheme when the Certificate of Completion is issued, others suggest that “completion” is a subjective concept and must be decided on a case by case basis. Which way the Tribunal rules on this point has become something of an unsatisfactory lottery for taxpayers.
In this instance, The Tribunal held in favour of Mr Proffitt, commenting that a building should be regarded as complete when it is complete in line with the building regulations and requirements. This is evidenced by the Certificate of Completion. Therefore, the three-month time limit for submitting a claim runs from the issue of the Certificate of Completion.
In contrast to the previous cases, Stewart Fraser lost his appeal against a decision of HMRC to refuse to refund VAT incurred on the construction of a new dwelling. A claim in the sum of £17,707.84 had been submitted under the DIY housebuilders scheme. This case dealt with the sole issue of whether the claim was made within 3 months of completion of the dwelling. The timeline can be summarised as follows:
- Mr Fraser occupied the property from 23 December 2015
- Council Tax Banding issued on 3 June 2016 (retrospective date for council tax of 23 December 2015)
- Certificate of completion issued by local authority on 16 April 2018
- VAT refund claim submitted to HMRC on 10 July 2018
The significant time lag between the occupation of the property and the issue of the certificate of practical completion concerned ventilation which was installed in June 2016. A dispute also arose between Mr Fraser and the local authority concerning a validation report as to the quality of the ventilation and gas membrane to protect future residents in the event of a gas leak. The dispute was resolved in April 2018.
Mr Fraser did not attend the hearing, but he agreed that he could not apply for a completion certificate until the validation of the gas membrane was accepted by the council. This was a matter beyond his control and the building was not completed until that point.
HMRC’s arguments were that the time limit is enshrined in law and the Commissioners have no discretion to extend it. The property was occupied in 2015. The only work completed since occupation was to change the fans in June 2016. The DIY refund claim was submitted 2 years after this. There was no requirement to await the issue of a completion certificate to submit a DIY housebuilders VAT refund claim.
The Tribunal Judge found in HMRC’s favour noting that neither VAT law nor HMRC guidance states that a VAT refund cannot be applied for until a completion certificate has been issued under the DIY housebuilders scheme.
This decision is slightly at odds with that in Farquharson where the FTT concluded that despite occupying the property for over 8 years, a DIY housebuilders claim was valid because it was made within 3 months of the completion of the dwelling. That said, each case must be judged on its own facts which are specific to it. This is a particularly ambiguous area of the law in its application and it is always worth seeking professional advice when initially considering the project rather than when it may be too late.
We can advise on complex legal points that may aid a successful claim as well as preparing and submitting a DIY claim on your behalf to help secure the maximum VAT refund on a given project and Constable VAT keeps a close eye on case law on this area and is well placed to assist if your claim is rejected.