Deadline extended for DIY housebuilder VAT claimsby
HMRC has announced that individuals building their own home or converting a non-residential building will have the option of submitting their DIY housebuilders VAT refund claim digitally from 5 December 2023.
As part of HMRC’s continuing mission to move taxpayer interactions online and away from telephones and post, HMRC has announced the digitisation of self-build DIY claims, although the traditional paper format is still available for those not ready for the digital revolution.
The self-build DIY scheme exists to place an individual who is building (or converting) their own home in the same VAT position as someone who purchased the house from a property developer.
When engaging with a builder/contractor in the construction of a new-build dwelling (or conversion into a dwelling), the builder/contractor would zero rate their supplies of labour, and also materials when installed by the contractor (labour). With the DIY scheme, the individual can reclaim VAT on the costs of building materials they have purchased themselves.
Submitting a claim
The individual can then submit a claim to HMRC at the end of the project, with HMRC refunding the individual the VAT element on the cost of those materials purchased. The individual would complete a form VAT431NB (for new-builds) and form VAT431C (for conversions).
The form has a series of questions to ensure the conditions for a claim are met and includes a number of pages to list all of the individual purchase invoices (date, supplier name, description of supply, total paid and so on) and each claim is supported by submitting original invoices and receipts for each and every transaction/purchase listed.
A claimant can only make one claim and that claim must be made within three months of the building having been completed. There have been many tribunal cases on what “completed” means. HMRC’s opinion of completion is when the dwelling has been finished according to its original plans and the three months start from the date of the document the applicant submits as proof of their completion date. (There can be various documents that support the completion date and indeed the completion date can be subjective at times.)
Completion can cause many different issues: the property might be habitable but not signed off by the council or planning officer for instance, or the individual may have moved in despite it not being signed off.
Time limits and submitting online
HMRC has announced that from Tuesday 5 December 2023 applications can be submitted electronically. They can still be submitted using the manual forms too.
In addition, HMRC will extend the time limit for making a claim. The current three-month deadline from completion will be extended to six months from completion. There still remains the matter of when completion has taken place, although in most cases it will be clear.
Further, the incoming changes will also see the list of documents required to be submitted at the time of the claim omit invoices, but include such evidence relating to the residential conversion from a derelict building or shell as may be specified by HMRC.
Anyone with experience of self-build DIY claims will know that HMRC’s performance in this section has deteriorated considerably since Covid. Before then the turnaround times were not brilliant either, with claims often taking four to six months to be processed or claims being rejected because one or two invoices out of 500 were not correct, resulting in the whole claim being rejected and needing to be resubmitted. Delays here cost the individual money as often their mortgage or finances are reliant on a speedy VAT refund and several months can really take the shine off your new home.
The opportunity to file online and submit fewer documents sounds brilliant. Online at least captures the data digitally and in the right format, some basic verification can be undertaken at the input stage on screen and this can allow HMRC to process those applications quickly. One would hope there is some element of artificial intelligence or automation that will perform a quick check for obvious errors and pull out unusual or odd transactions that can then be enquired into without rejecting or delaying the process.
Whether the changes will speed things up remains debatable. This is not HMRC’s first foray into digitising processes – for example the VAT652 voluntary disclosure of errors form can be submitted online, as can options to tax and of course VAT registrations – but online submissions have not guaranteed quicker turnaround times, so while the ability to submit DIY claims digitally is the right move, whether or not claimants can get their refunds quicker remains uncertain for now.
Claims remain the same
There are no changes to the overall conditions for making a claim. The individual must ensure that the correct rates of VAT are charged by contractors (zero or reduced rated), not all material costs can be reclaimed, the scheme mirrors the general zero/reduced rating rules for new-build dwellings and conversions such that some materials cannot be reclaimed. These include Agas or range cookers (unless they also heating the property), white goods, furniture, audio equipment such as built-in speakers, intelligent lighting, and consumables like sandpaper or white spirit.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...