Developer wins Tribunal case
The VAT DIY Housebuilder’s scheme is a scheme designed to ensure that a homeowner building a home can benefit from the special VAT rules which allow the qualifying construction costs of new homes and certain conversion works to be zero-rated. The use of the scheme allows homeowners to be in a similar position to a property developer.
A recent First-tier Tribunal case examined an appeal by two property developers against a penalty raised by HMRC. The penalty related to a claim using the VAT DIY Housebuilder’s Scheme (using a VAT 431B form) rather than registering for VAT and then claiming back the VAT incurred using the regular VAT return process.
The facts of the case were not in dispute. The property developers had always intended to convert a property they owned into two separate flats with the intention of selling them on at a profit. However, they incorrectly identified the DIY Housebuilder’s Scheme as the correct method for reclaiming a VAT refund. That belief was based on a reading of advice contained in a document circulated to landlords of property (RLA Landlord News Hub). However, the advice they read was of a generalised nature and the developers were not in fact eligible to use the DIY Housebuilder’s Scheme.
Importantly, there had been no loss to the Revenue. In fact the developers subsequently registered for VAT and recovered rather more of the input VAT than they had applied for under the Housebuilder’s Scheme. The Tribunal was clear that the penalty raised by HMRC ‘produces the logical absurdity that the Appellants’ accuracy in the completion of a form designed to check eligibility under the Scheme gives rise to a penalty for inaccuracy.’
In a common sense decision, the Tribunal found in favour of the property developers and the penalty was set aside.