DIY Housebuilder Refund Scheme: VAT – First Tier Tax Tribunal - Decision Update

The case involved a second DIY VAT refund application made by Mr Lawton (who represented himself) on his barn conversion having previously submitted a separate DIY claim for the VAT refund on an earlier planning permission. The initial claim was submitted in June 2021 against a permission referenced PA10/0410 and this was accepted and paid by HMRC in December 2021.

However in November 2021 Mr Lawton obtained a second planning permission (PA21/11436) to extend the existing barn further to a part of the earlier permission that had not been commenced. This new ‘second permission’ was granted in January 2022 and built out, with its completion certificate being issued on 10 October 2022. Mr Lawton then submitted his ‘second’ DIY VAT refund claim on 18 October 2022 in total for £2,582.38.

DIY HOUSEBUILDERS’ VAT CLAIM SCHEME

The VAT Refund Scheme for DIY Housebuilders enables individuals constructing their own homes to reclaim the VAT paid on goods and services used in the construction. This places them on a comparable footing to those purchasing a zero-rated new build property directly from a developer.

However, only one claim can be submitted per self-build or residential conversion project. Therefore, determining the correct time to make the claim is essential – as this case reinforces!

CASE DETAILS

This First-Tier Tribunal (FTT) case saw Mr Lawton appeal HMRC’s decision (June 2023) to reject a second DIY Housebuilders’ Claim for his second permission, to extension his barn conversion, where he had already received the VAT refund on a previously submitted claim and had been repaid by HMRC in December 2021.

The FTT held that the second DIY claim related to an extension to an existing dwelling, which under the VAT Scheme was ineligible by statute for a VAT refund and that HMRC’s decision to refuse this claim was correct. The tribunal stressed the importance of adhering to the scheme's rules and ensuring that VAT claims align with the original planning permissions. This case underscores the critical role of timing and compliance with the scheme's requirements in recovering VAT for self-build projects.

We set out below other key aspects of our VAT services within Property & Construction sectors. If these strike a nerve, then please get in touch to see how we might assist you to save money, on your projects – large or small.

VAT AND REAL ESTATE: WHAT YOU NEED TO KNOW

VAT and real estate don’t always mix easily. With rules that change depending on the type of property or transaction, it’s vital to know what applies to you and your projects. Here’s a quick overview of the key points — but remember, every situation is different, and expert advice can make a big difference to your ability to recover VAT – or not pay it in the first place!

VAT BASICS IN PROPERTY

Most sales and leases of land and property are exempt from VAT. However, as is often the case in tax, there are exceptions, such as the sale of new commercial properties or residential dwellings, which are standard- and zero-rated respectively. Older commercial properties are usually exempt, but with an Option to Tax, VAT can be applied, opening opportunities to reclaim input VAT — but beware, it’s not always beneficial.

OPTION TO TAX (OTT)

An OTT lets you charge VAT on property deals that would otherwise be exempt. This can help recover VAT on costs like construction or renovation, but it’s a long-term decision with potential pitfalls, depending on the likely or target buyer or tenant.

CONSTRUCTION VAT RATES

• Zero-rated: Building new homes, Energy Saving Materials or qualifying charitable buildings.
• 5% VAT: Major residential renovations or conversions.
• 20% VAT: Repairs and standard construction work.

Understanding which rate applies to your project can make or break your budget.

MIXED-USE DEVELOPMENTS

When developing properties with both residential and commercial elements, VAT apportionment is key. Careful planning ensures you reclaim VAT where possible while remaining compliant.

TRANSFERS OF GOING CONCERN (TOGC)

If you’re buying or selling a property as part of a business, the transaction might qualify as a TOGC. Under the right conditions, this allows you to treat the transaction as outside the scope of VAT – which can be a big benefit - but the requirements are detailed and need to be meticulously followed.

WHY PROFESSIONAL ADVICE MATTERS

VAT in real estate is complex, and every deal is unique. From reclaiming VAT on costs to avoiding penalties, getting the details right is essential. If you’re handling a property sale, construction project, or lease, don’t risk getting it wrong – get in touch to see how we could help.