A tribunal has ruled that self-builders using HMRC’s DIY housebuilders’ scheme are entitled to claim interim VAT refunds instead of waiting until the project is complete before getting their money back. But could HMRC be about to sweep this decision under the carpet?
The VAT refund scheme for DIY housebuilders allows individuals who are building their own home, either as a new build or as a conversion of a non-residential building, to recover the VAT they incur on building materials and construction services from HMRC. The long-standing scheme is said to have been designed to give self-builders a similar VAT relief to the zero-rate enjoyed by those who buy a new home from a commercial developer. The scheme also covers self builds of other types of buildings for non-business use, such as charity buildings.
HMRC has always restricted DIY housebuilders to making just one claim to recover the VAT, which is made after completion of the project, and must be submitted to HMRC within three months of the date of the certificate of completion issued by the local authority. It doesn’t allow interim claims to be made along the way. As DIY projects can often take a long time to complete, this restriction often causes considerable hardship to DIY builders, who in some cases must wait years before they can recover the VAT they have paid to suppliers while the work was in progress.
However, in a recent appeal brought by DIY housebuilders (A Ellis and another v HMRC [2021] UKFTT 343 (TC)), the First-tier Tribunal has ruled that there is nothing in the law underpinning the DIY scheme to prevent interim claims from being made. HMRC had, in the tribunal’s view, exceeded its authority by imposing a ‘one claim only’ condition in the regulations it created to administer the scheme. The tribunal observed that this rule disadvantages DIY builders against commercial housebuilders, who are entitled to boost their cash flow and reduce the need for extra finance by claiming regular VAT refunds via their VAT return.
Despite the tribunal’s decision, HMRC can be expected to resist making changes to its policy on DIY scheme claims. Allowing interim claims would undoubtedly increase its costs of administering the scheme and require it to put checks and safeguards in place to protect against fraudulent claims. However, HMRC does have these arrangements already in place for commercial developers, who face pre-repayment credibility checks from HMRC when claiming VAT on building costs on their VAT returns.
As a First-tier Tribunal decision, this ruling is only binding on HMRC and the appellant, so HMRC is currently only compelled to pay this specific claim as a result. HMRC’s most likely reaction is to simply ignore the decision rather than appealing it as, should HMRC lose again at the Upper Tribunal, this would set a precedent that could allow DIY claimants in general to make interim claims under the scheme.
Should HMRC take this approach, it will not be the first time it has used this tactic to limit the effect of tribunal decisions that go against it, meaning that other taxpayers must bear the costs of fighting the same case themselves to obtain the benefits of this ruling.
Home >Articles > Tribunal pressures HMRC to speed up VAT refunds for DIY housebuilders
Tribunal pressures HMRC to speed up VAT refunds for DIY housebuilders
A tribunal has ruled that self-builders using HMRC’s DIY housebuilders’ scheme are entitled to claim interim VAT refunds instead of waiting until the project is complete before getting their money back. But could HMRC be about to sweep this decision under the carpet?
The VAT refund scheme for DIY housebuilders allows individuals who are building their own home, either as a new build or as a conversion of a non-residential building, to recover the VAT they incur on building materials and construction services from HMRC. The long-standing scheme is said to have been designed to give self-builders a similar VAT relief to the zero-rate enjoyed by those who buy a new home from a commercial developer. The scheme also covers self builds of other types of buildings for non-business use, such as charity buildings.
HMRC has always restricted DIY housebuilders to making just one claim to recover the VAT, which is made after completion of the project, and must be submitted to HMRC within three months of the date of the certificate of completion issued by the local authority. It doesn’t allow interim claims to be made along the way. As DIY projects can often take a long time to complete, this restriction often causes considerable hardship to DIY builders, who in some cases must wait years before they can recover the VAT they have paid to suppliers while the work was in progress.
However, in a recent appeal brought by DIY housebuilders (A Ellis and another v HMRC [2021] UKFTT 343 (TC)), the First-tier Tribunal has ruled that there is nothing in the law underpinning the DIY scheme to prevent interim claims from being made. HMRC had, in the tribunal’s view, exceeded its authority by imposing a ‘one claim only’ condition in the regulations it created to administer the scheme. The tribunal observed that this rule disadvantages DIY builders against commercial housebuilders, who are entitled to boost their cash flow and reduce the need for extra finance by claiming regular VAT refunds via their VAT return.
Despite the tribunal’s decision, HMRC can be expected to resist making changes to its policy on DIY scheme claims. Allowing interim claims would undoubtedly increase its costs of administering the scheme and require it to put checks and safeguards in place to protect against fraudulent claims. However, HMRC does have these arrangements already in place for commercial developers, who face pre-repayment credibility checks from HMRC when claiming VAT on building costs on their VAT returns.
As a First-tier Tribunal decision, this ruling is only binding on HMRC and the appellant, so HMRC is currently only compelled to pay this specific claim as a result. HMRC’s most likely reaction is to simply ignore the decision rather than appealing it as, should HMRC lose again at the Upper Tribunal, this would set a precedent that could allow DIY claimants in general to make interim claims under the scheme.
Should HMRC take this approach, it will not be the first time it has used this tactic to limit the effect of tribunal decisions that go against it, meaning that other taxpayers must bear the costs of fighting the same case themselves to obtain the benefits of this ruling.
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