VAT Question of the week
Q. My client is a sole proprietor builder who owns land on which he is intending to a build a new house for his own occupation.
My client does not want to wait until the property has been constructed and a completion certificate been received in order to claim the VAT using the DIY Refund Scheme.
As a sole proprietor my client is VAT registered for his building services business and he has asked if he could purchase the materials through the company and claim the VAT back and charge himself a zero-rated fee for the labour which has been marked up to reflect the costs incurred on the materials and labour.
A. In order for an individual to reclaim VAT on costs incurred on constructing a new dwelling for his own occupation the DIY refund Scheme is the correct method.
The DIY Refund Scheme allows a person to claim the VAT back on building materials purchased when a new house has been built for occupation by themselves or their relatives and is not to be used in the course of furtherance of any business activity such as for sale or renting.
Prior to 01 January 2011 a sole proprietor (or partnership) who built a house on his own land for his own occupation had the choice of recovering the VAT through the VAT return or making a claim via the DIY refund Scheme.
However, after 01 January 2011 this option is no longer available. HMRC’s manual VCONST24350 states that it is only possible to recover VAT through a VAT return to the extent that the services and materials will be used for taxable business purposes. As such the only way for your client to recover the VAT is by making a DIY claim for the cost of materials and this should be made as one claim within 3 months of completion.