If any of your Clients is considering building their own house and claiming the VAT using the D-I-Y scheme, then you should note this.
Many such claims are rejected on the basis of Note 2(c).
This is VAT Act 1994 Sch 8, Group 5, Note 2(c), which states that “a building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied:
… the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision …”
There are two Upper Tier Tribunal decisions which explain how this Note works to prevent such claims. These are Roy Shields  UKUT 453 and Richard Burton  UKUT 20. In both cases, the Tribunal upheld HMRC’s decision to reject claims.
In both cases, the Planning Permission contained wording that breached this part of the legislation:
In Burton; “the occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fishery or a widow or widower of such a person, or any resident dependants.”
In Shields; “The occupation of the dwelling shall be limited to a person solely employed by the equestrian business at 274 Bangor Road, Newtownards, and any resident dependants.”
This is frequently a problem where the development is located in a rural area, with a link with an adjacent commercial or agricultural development.
HMRC are skilled at rejecting claims with such clauses in. Planning Permission has to be provided with D-I-Y claims. And related documents are publicly available for inspection, so HMRC will trawl through these to check the wording.
The latest FTT case is here: http://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=10009
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.