A costly reminder that having the correct planning permission in place prior to works commencing has been highlighted in the recent case of building contractors AbbeyTrust Homes Limited. Zaenia Rogers, Consultant at The VAT Consultancy, takes a look.
The main point of the appeal revolved around the planning permission for a new build. In short, when HMRC requested a copy from the contractor of the planning permission to substantiate the zero rating on their construction supplies (and thus a large repayment return of c£34k), it was found that the permission actually stated that an extension was taking place. The case continues with retrospective permission being granted, but the Tribunal quite rightly stated that there is “no basis by which the retrospective provision of the planning consent many months after the Appellant had received payment for supplies can alter the tax treatment of those supplies”.
It is useful to note HMRC did accept that any payments for services after the retrospective permission was granted could be at the zero rate, but that condition (d) of Note 2 of Schedule only states a building is a dwelling if the relevant statutory permission has already been granted.
Whether you are the property owner, contractor or architect, we would always advise that the impact of VAT needs to be considered at the very beginning of any building project.
The impact of not having the correct planning permission in place at the beginning of the project as highlighted in the case above would have an effect on all budgetary aspects of the build, not to mention the cost and stress associated with the legal struggle to get the situation corrected.
We can work with you on your planning permission request to ensure you achieve the VAT rate you require to minimise VAT as a cost to the project as well as work with contractors along the way to ensure they are applying the right rate of VAT to their supplies. Land and property is a notoriously complex areas of VAT, yet one of the areas where, if managed carefully, the potential for VAT savings is enormous.
If you would like to discuss wording for your planning permission to ensure you achieve the VAT rate you require for your building project or if you need any other VAT element of your project confirming, then please do not hesitate to contact me: firstname.lastname@example.org.
The DIY scheme allows those converting a commercial property into a residential home or building a residential home from scratch to reclaim VAT on their build costs. On a conversion, services by a contractor (and building materials also supplied with those services) should be subject to the reduced rate of VAT (5%). In the past, where 17.5% had been charged HMRC would refund 5% and ask you to go back to the contractor to recover the remaining part. However, HMRC have recently reused a number of claims unless a correct invoice for 5% is received and therefore going back to your contractors is the only option for any recovery.
It remains our advice that ensuring the correct liability on invoices in the first place will ensure an easier claim process at the end! Follow our top ten tips, put together by consultant Zaenia Rogers which is featured in the latest edition of Self Build & Design magazine, to ensure your project goes smoothly:
1. Understand key HMRC definitions at the Planning Stage. In order to budget for your build you will need to know whether you are able to claim VAT back on the build. It’s worth ensuring at this stage that your ideas meet the definitions for ‘new residential dwelling’ or ‘qualifying conversion’. This will help make sure your planning application is completed to ensure that a claim can be made. There are strict definitions around separate use and disposal in planning permissions and what constitutes a ‘new build’ for VAT.
2. Who can reside in the property? You can build the property for another relative to reside in, the key point is that it will become someone’s abode without a sale or rental. Therefore you can complete the build and have invoices in your name, even if the property is for your elderly mother to reside in. Obviously you still need to ensure the correct definitions are met as detailed in point 1).
3. Using Contractors. Despite the name of the scheme, you are able to use contractors to undertake the work for you. The only difference here will be the vat rate on their services will vary depending on the nature of the works and materials provided.
4. Get the right VAT rate. It is important to get the right rate from your contractors. Services provided on a new construction of a new dwelling will qualify for the zero rate, whereas the reduced rate (5%) will apply for qualifying conversions. If your contractor has charged you 20% where the reduced rate (5%) should have been applied, then commonly HMRC refuse to refund any VAT. In the main, HMRC insist you go back to your contractor and get the invoices re-issued with the reduced rate, sometimes a problem if your contractor has gone ‘bust’ in the meantime!
5. Aid your cash flow. If you wish to source your own goods, still ask your main contractor to make the final purchase of the goods and sell them on to you with his services of installing them. For a new build project, this means the contractor can sell the goods to you at the zero rate of VAT, whereas if you purchase them yourself you are more often than not going to have to pay standard rate VAT (20%) and then wait until the end of the project to claim this VAT back from HMRC. The contractor will be able to recover the VAT on the purchase on his VAT return.
6. What can you claim. A valid claim can be made on any building materials you purchase and use on the build project. If you purchase goods from the EU you will incur VAT from the appropriate country, on a DIY claim, you can convert this amount into sterling and still recover it. Also services of conversion charged at the reduced rate can be recovered. In the main, services on which the standard rate is incurred cannot be recovered, these include professional fees such as architects.
7. Claim on time. The claim form must be submitted within 3 months of completion of the conversion/construction, usually this is when the certificate of completion is issued, although it can be earlier if the certificate is delayed. In any event, if for any reason you cannot meet this deadline you MUST write to HMRC in advance and request an extension.
8. Use the right form. HMRC publish the forms on their website. Using the correct forms will help to ensure less delays and a quicker refund.
9. Send everything Recorded Delivery! You are sending all original invoices and a form which will have taken time to complete, as this is your money at stake, take time to send it recorded delivery to ensure nothing is lost. To safeguard your position even more, photocopy EVERYTHING before you send it – it can avoid lengthy delays in the event of the originals going missing!
10. Seek Advice. If you are in any doubt it is best to check with a reputable VAT advisor as mistakes can be costly.