The first case concerned overall eligibility for a DIY Reclaim. Whilst Mr & Mrs Treanor had been granted permission for a residential unit, it was limited to occupation and use with an adjoining workshop. Whilst the Tribunal sympathised with the Treanors, they found that HMRC were correct to reject the claim as being a ‘live-work’ unit and not passing the test of ‘being designed as a dwelling’.
On 24th March, HMRC released a policy paper confirming that the Prime Minister has secured agreements with other officials at the March European Council to welcome increased flexibility for member states in relation to the zero and reduced rates of VAT. Whilst this was primarily related to the abolition of the ‘tampon tax’ – the increased flexibility could present an opportunity for the UK to reconsider other demands – like the ECJ ruling which suggested that the reduced rate on energy saving materials was in breach of EU laws.
We reported previously on the likelihood of Energy Saving Materials losing their 5% VAT rate following the European Court’s ruling against the UK. This is where the UK was found in breach of the EU VAT Directive in that the 5% rate was applied too generously and primarily failed the ‘social’ aspect of the VAT relief.
HMRC have begun a consultation process that inevitably will lead to the removal of the 5% VAT rate – or in certain circumstances retention of the rate but only where the ‘as part of a social policy’ aspect can be met. The proposal is for the relief to be allowed for those in receipt of benefits, over the age of 60 or for specific types of buildings – housing associations and group style accommodation such as care homes and similar.
The One Show 17th December 2015 again highlighted time taken by HMRC to respond to queries. This followed an admission from Linda Homer, Chief Executive of HMRC, in October that response times were poor and that only half of telephone enquires made between April & June were answered.
Alternative suggestions to use e-mail & Twitter were found by The One Show to be equally ineffective, and a potential barrier to those not familiar with digital media; notably the elderly and potentially poorer tax credit applicants. A Tweet submitted during The One Show, remained unanswered 30 minutes later at the close of broadcasting.
There is a noticeable omission in the latest VAT Guide relating to Zero Rated alterations for disabled users. Previously, it was permitted to zero rate the replacement of a room where the original room was converted into a bathroom / washroom for an individual.
The European Court of Justice has found that the UK has applied the Reduced Rate of VAT too widely in allowing the 5% rate on domestic supplies of energy saving materials. Generally the reduced rate can only be used for ‘social policies’ and using it as a general incentive for green measures is not sufficient – furthermore doubt has been raised as to the types of materials, as they do not fall into the permitted categories of ‘renovation of alteration of housing’.
Although a case specifically concerning itself with new build for charitable and residential purposes; the York University Case does contain useful insight into how HMRC (and the Courts) consider phased works. This can be applied to 5% schemes where properties are either converted or brought back into use after a period of abandonment. The 5% VAT rate relates to the physical conversion of such a property and once ‘complete’ the 5% rate is expired.