My thanks go to John Shearer of Mayell Shearer VAT Consultants for this story. It highlights one of the many pitfalls for individuals building their own homes, known as DIY house builders.
This is from a recent VAT Tribunal decision.
The general rule is that you can reclaim the VAT on materials if you build your own house using a special VAT scheme.
The facts of the case are that Mr Harrison-Devereux had a house constructed for him. Why he chose to call it The Piggery is not known but there may be a clue there somewhere.
The construction work was slow but completion was even slower due to continued squabbles with the local Planning Department.
Once everything was finished, Mr Harrison-Devereux sent in his VAT claim to the VAT office and waited for his cheque. You cannot make a claim under the DIY scheme until the building has been completed.
The VAT office verify all DIY claims and as part of its checks found that one of the building contractors had charged VAT at 17.5%.
The invoice appeared to be for services rendered and related materials. These invoices were rejected from the claim. The VAT Office refused to repay the VAT paid on these invoices.
Mr Harrison-Devereux called foul and lodged an appeal before an independent VAT Tribunal, and he lost! The Tribunal agreed with the Revenue.
The Tribunal said that if the builder had only supplied materials then it was correct to charge VAT. Mr Harrison-Devereux would then have had a valid claim but as the builder also carried out building work he should have zero-rated his total invoice.
This was because it was a ‘supply in the course of construction of a new dwelling’. The VAT charged and paid in error could not be reclaimed from the VAT Office.
Normally this would not be an insurmountable problem as the builder would credit the customer and adjust on his next VAT return.
However in this instance, as the building took so long to complete, the invoice was ‘out of time’ for the builder to make any such adjustment!
We do not know if Mr Harrison-Devereux pursued the builder for the amount of the VAT involved but the fact is that he could do so and the builder might then have to bear the cost!
Moral of the story…make sure you get it right!