It’s all in the timing…, writes Graham Elliott (City & Cambridge Consultancy).
The DIY housebuilders’ VAT scheme seems to crop up continually in the tribunals. I enjoy reading them, partly because the story they tell transcends the tax technical interest. The case of Mr Bowley [2015] UKFTT 683 (reported in Tax Journal, 15 January 2016) tells a story with which we all are somewhat familiar (in differing contexts).
Mr Bowley built his house in the 1990s. He built it with a garage. The DIY VAT scheme allows him to claim VAT on the garage as long as he fulfils two conditions: the garage must be intended to be used with the related house; and it must be built ‘at the same time’ as the house. It is the second of these which was under scrutiny in this case. What does that simple phrase actually mean?
It would be an irrelevant consideration in most cases, since a garage and house would be built in a reasonable and similar timeframe (say within two years maximum). Even if the garage needed a few weeks to be finished off after the house was essentially complete, that would be a natural timeframe for the work. But Mr Bowley completed the house in 1994, and moved in. By that time he had made a start on the garage (but only just). He did not complete the garage project until the end of 2013. That was approximately 20 years after the completion of the house. At that stage, he made his DIY claim. As only one claim is allowed per development, he had no choice, if he wanted to claim all of the costs of the garage, but to delay his claim for the costs of the actual house. That delay (which must have related to the majority of the costs) was 20 years.
HMRC declined the entire claim. It said that the time limit for making the claim (three months from the completion of the project) had long since passed, so he was out of time. They did not accept that the delay in completing the garage had any effect on this conclusion. A garage that was completed 20 years later cannot have been ‘built at the same time’ as the house. The house had qualified, but had been completed 20 years ago. No refund was offered.
The evidence showed that the garage had been started at the time the house was still being constructed (though only the preliminaries). The tribunal saw no need for coterminous completion of structures to fulfil the definition of ‘built at the same time’. It was sufficient that the works overlapped so that something was happening in regard to both buildings at the same time, and it did not matter how long Mr Bowley had taken to complete the garage.
Should we feel sympathy for HMRC? Probably not. Mr Bowley was out of most of his money for two decades, and it would have added insult to injury not to pay him the funds that HMRC would not have held for all that time were it not for the troublesome garage project. But you perhaps cannot blame HMRC for thinking that Mr Bowley’s story was too extraordinary to be credible, and not aligned with the usual practice that was envisaged by the draftsmen of the legislation. Then again, as his case is clearly exceptional, there is no reason to fear the impact of the modest sums in point. One cannot help thinking that HMRC should have chuckled – and paid up.
Home >Articles > Bowley and the VAT DIY housebuilders scheme
Bowley and the VAT DIY housebuilders scheme
It’s all in the timing…, writes Graham Elliott (City & Cambridge Consultancy).
The DIY housebuilders’ VAT scheme seems to crop up continually in the tribunals. I enjoy reading them, partly because the story they tell transcends the tax technical interest. The case of Mr Bowley [2015] UKFTT 683 (reported in Tax Journal, 15 January 2016) tells a story with which we all are somewhat familiar (in differing contexts).
Mr Bowley built his house in the 1990s. He built it with a garage. The DIY VAT scheme allows him to claim VAT on the garage as long as he fulfils two conditions: the garage must be intended to be used with the related house; and it must be built ‘at the same time’ as the house. It is the second of these which was under scrutiny in this case. What does that simple phrase actually mean?
It would be an irrelevant consideration in most cases, since a garage and house would be built in a reasonable and similar timeframe (say within two years maximum). Even if the garage needed a few weeks to be finished off after the house was essentially complete, that would be a natural timeframe for the work. But Mr Bowley completed the house in 1994, and moved in. By that time he had made a start on the garage (but only just). He did not complete the garage project until the end of 2013. That was approximately 20 years after the completion of the house. At that stage, he made his DIY claim. As only one claim is allowed per development, he had no choice, if he wanted to claim all of the costs of the garage, but to delay his claim for the costs of the actual house. That delay (which must have related to the majority of the costs) was 20 years.
HMRC declined the entire claim. It said that the time limit for making the claim (three months from the completion of the project) had long since passed, so he was out of time. They did not accept that the delay in completing the garage had any effect on this conclusion. A garage that was completed 20 years later cannot have been ‘built at the same time’ as the house. The house had qualified, but had been completed 20 years ago. No refund was offered.
The evidence showed that the garage had been started at the time the house was still being constructed (though only the preliminaries). The tribunal saw no need for coterminous completion of structures to fulfil the definition of ‘built at the same time’. It was sufficient that the works overlapped so that something was happening in regard to both buildings at the same time, and it did not matter how long Mr Bowley had taken to complete the garage.
Should we feel sympathy for HMRC? Probably not. Mr Bowley was out of most of his money for two decades, and it would have added insult to injury not to pay him the funds that HMRC would not have held for all that time were it not for the troublesome garage project. But you perhaps cannot blame HMRC for thinking that Mr Bowley’s story was too extraordinary to be credible, and not aligned with the usual practice that was envisaged by the draftsmen of the legislation. Then again, as his case is clearly exceptional, there is no reason to fear the impact of the modest sums in point. One cannot help thinking that HMRC should have chuckled – and paid up.
