Policy update from HMRC on DIY Housebuilders Scheme

The first-tier tribunal case of Andrew Ellis and Jane Bromley has instigated the brief from HMRC.

The policy stated that only a single claim is allowed under the DIY Scheme and this has not changed. However, where it is agreed that a claim has been repaid in error, HMRC will accept a subsequent claim with evidence that the claim has been made within three months of completion.

The scheme applies to private persons constructing their own homes or converting non-residential buildings into their own homes.

It stipulated that the sale of new residential dwellings by a developer is zero-rated for VAT. This entitles the developer to get back the VAT on the cost of the construction on their VAT return while also charging no VAT when selling the new dwelling.

The DIY Housebuilders Scheme allows private persons to get back VAT on the cost of building materials when constructing their own homes, putting them in a similar position to developers. Under the DIY Scheme house builders can submit a single claim within three months of completion.

In the case of Mr Ellis and Ms Bromley, two DIY house builders’ claims were submitted to HMRC. HMRC repaid the first claim having accepted valuation for council tax purposes as evidence of completion. HMRC received a further claim following the grant of planning permission by the Local Planning Authority for further required works. The second claim was rejected as it was out of time and as a valid claim had already been made and paid.

The court found that the first claim was paid in error as the evidence of completion given by the Valuation Office was invalid and should not have been accepted. As the first claim was paid in error the second claim should have been allowed and was not outside the three-month time limit.

HMRC already allows (on a case-by-case basis) acceptance of supplementary claims. This is for invoices and works carried out before the claim was submitted, which may have been left out in error or invoices issued late by the contractor.