VAT Question of the Week (31st May 2016)

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08 Jun 2016

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Q. My client acquired a plot of land two years ago with a view to building a bungalow for his retirement. He runs a small building business and so his intention was to construct the bungalow himself and make a claim under the DIY Housebuilders Scheme. However, due to ill health he has been forced to suspend the project and I am concerned that if he leaves it too long he will be out of time to make the claim. Please can you clarify the position? A. There is a time limit for submitting a DIY claim, and it is that the claim should be made no later than three months after the construction is completed according to the original plans. Therefore your client does not need to worry about the time limits until construction has finished. HMRC state that in cases of doubt, a building can be regarded as still under construction up until the date a certificate of completion is issued by a local planning authority. HMRC do have discretion to consider claims after this date, but extensions are not offered as a matter of course. As the four year capping provisions do not apply to DIY claims a claim can be processed irrespective of the date that the goods or materials were purchased. However, problems can arise when a claim is submitted and building services have been charged at the incorrect rate of VAT. Therefore, if your client, because of his ill heath, decides to engage a builder to do the work, he should ensure that the invoice is correctly zero-rated as HMRC will not refund any VAT that is incorrectly charged; instead the supplier should correct the transaction. If the supplier refuses to do so, because his transaction is affected by the four-year cap and he cannot recover the overcharged VAT from HMRC, or if he is unable to do so because he is no longer in business or insolvent, your client would still not be able to recover the VAT from HMRC. The other timing issue to consider is that of planning permission. To qualify as a dwelling the building must have been granted planning consent and have been built in accordance with that consent. Delays can lead to planning consent lapsing and it would therefore be wise for your client to ensure it is still valid when the construction begins. Do you have clients that are building their own homes to live in and intend to submit DIY claims to recover the VAT incurred? If a claim is submitted incorrectly HMRC can and do impose penalties under FA 2007, schedule 24 para 1(1) for supplying a document that contains an inaccuracy. If you require assistance with making a claim why not call the VAT advice line on 0844 561 8101. Our VAT experts have a wealth of knowledge on all aspects of the scheme and will be happy to assist you. VAT Voice is a free magazine from Croner Tax sharing the latest news and trends in VAT as well as giving you a chance to get to know the members of our growing VAT team. The 5th edition is now available to download. Get your copy here.

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