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Do not Lose out on VAT Claims for New Build Homes


The VAT People - Expert Author

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25th April 2014

The devil is always in the detail with VAT and simple errors of understanding or changes to planning permission can cost businesses dearly. In the case of DIY House Builders claims, or where clients or businesses are constructing new dwellings, it is always worth checking that the conditions are met to allow the property to be treated as new build. If the conditions are not met HMRC will reject any claim for VAT made under the DIY House Builders scheme.

This is also an important point for builders zero rating their construction services and development businesses seeking to recover VAT on building materials. HMRC will also assess for VAT, interest and penalties if the conditions for the property to be treated as new build are not met and work is zero rated VAT, or VAT on building materials is claimed, in error. However, HMRC are not always correct in their interpretation of the law relating to new build dwellings as highlighted in the recent tribunal case of Mr Wilson.

Mr Wilson submitted a claim under the DIY House Builders scheme for VAT incurred in the course of demolishing an existing building with the exception of two walls retained to meet the conditions of the Council that had granted planning permission. Mr Wilson subsequently built a new dwelling in the space occupied by the previous dwelling.

The claim was subsequently rejected by HMRC on the basis that the planning permission that had been granted was for a two storey extension to an existing dwelling and that there was no requirement in the planning permission to retain the two and existing walls and incorporate them within the new dwelling (which is a requirement of schedule 8 to VAT ACT 1994 for the existing building to be classed as demolished). Furthermore HMRC questioned if the appellant had in fact obtained planning permission that would support the level of work carried out to demolish the existing property.

HMRC were correct that the planning permission Mr Wilson had obtained referred to an extension to an existing building rather than its demolition and replacement with a new building. However, in the course the work Mr Wilson discovered that it would be necessary to demolish the majority of the property as it was unsound and entered into meetings with the Council to agree a revision to the planning permission. The Council subsequently issued a letter to Mr Wilson stating that it confirmed that the planning permission and the subsequent completion certificate included all works relating to the rebuild of demolished parts and the two story extension.

In a victory for common sense the tribunal ruled that Mr Wilson had the necessary planning permission for the work and did not find HMRC’s comments that the work didn’t have planning permission credible given the clear evidence of the discussions that had taken place with the Council. It found that the condition in law allowing a building to be classed as demolished and therefore a new building built in its place was fulfilled. The legislation states that in order to be classed as demolished the retained façade(s) must be a condition or requirement of statutory planning consent or similar. Mr Wilson clearly had obtained ‘similar permission‘ and was entitled to repayment of the relevant VAT claim.

If you or your clients are involved in a project to build a new house or apartments it is always worth seeking professional VAT advice to ensure that any potential exposures to VAT are mitigated. In addition, if you or your client has a dispute with HMRC concerning the VAT status of dwellings it would be worth calling our free VAT helpline for an initial no obligation discussion.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2014-05-12 10:05:59 in Tax Articles

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