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HMRC internal manual

VAT Construction

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HM Revenue & Customs
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DIY builders and converters VAT Refund Scheme - eligibility of claims: condition 1: VAT must be chargeable

 
 
 

Background

VAT can only be refundable to the extent that it is properly chargeable on a supply under the law.

VAT at the wrong rate (for example, where VAT was shown at the standard rate but the correct rate was the reduced rate or the zero rate) cannot be refunded.

In such circumstances, it is the responsibility of the supplier to correct the transaction, refund the VAT overcharged to his customer and adjust his VAT account with HMRC.

Please note, however, that the supplier may be unwilling or unable to correct the transaction. For example, a supplier will be unable to adjust his VAT account with HMRC should the correction fall outside of four years from the date of the supply (the ‘four year cap’). As a consequence, the supplier is unlikely to refund the VAT overcharged to his customer. Alternatively, the supplier may no longer be in business and so cannot refund the VAT overcharged.

This approach has been supported in a number of Tribunal cases.

Circumstances where VAT isn’t properly chargeable

There are two circumstances where claimants are likely to incur VAT that isn’t properly chargeable. These are:

  • where a claimant has been in receipt of services for the construction of a new building

VAT Will not be charged on building services supplied in the course of construction because they fall within the scope of zero-rating. Building materials supplied in conjunction with those services (such as the windows that are installed by the supplier) will also form part of a single zero-rated supply. Contractors may treat the services separately from the materials and charge VAT on the materials. As VAT isn’t chargeable on the supply of materials in such circumstances, that VAT isn’t recoverable under the Scheme.

  • where a claimant has been in receipt of services for carrying out a non-residential conversion

VAT is for the most part recoverable on services relating to conversions [Groups 6 and 7 to Schedule 7A]. However, these services will be charged at the reduced rate of VAT (5 per cent). Should a contractor charge VAT at the standard rate rather than the reduced rate, we will only refund VAT at the reduced rate.

Please note, however, that there are some services carried out in the course of conversion that will be standard-rated and not reduced-rated (for example, works to enable the provision of utilities outside the immediate site or works to install ‘non-building materials’). In such circumstances, we will refund VAT at the standard rate on those services (but not the VAT on the ‘non-building materials’).

Invoices made out to a third party

There may be circumstances where a claimant decides to use a friend or acquaintance to act as an agent to purchase goods and services on the claimant’s behalf. For example, the agent may have a trade account with a firm of builders’ merchants, thus enabling the claimant to take advantage of trade discounts or credit terms.

So long as HMRC can be satisfied that a true agency arrangement exists and that the claimant has paid for the goods and services (and the VAT thereon), the VAT chargeable can be included in the claim.