The DIY refund scheme is intended to reimburse owner occupiers the VAT suffered on materials – and in the case of Conversions – the 5% VAT charged by Contractors.
Philip Hargreaves submitted a DIY Claim and had a number of Contractor’s invoices rejected in full where 20% had been charged in lieu of the reduced rate. Whilst Customs have the discretion to make an ex-gratia payment of the 5% rate – leaving the occupier to seek a credit from the builder of 15%, they are not obliged to do so. Customs stance is that it is only ‘VAT properly charged’ that will be considered for reclaim and a builder mistakenly (or naively) charging VAT in full is therefore VAT charged in error and wholly excluded from the claim.
What was especially harsh for Hargreaves was that two of the traders could not reissue their invoices at 5% and credit the 15% – one had de-registered for VAT and the other had gone into liquidation.
Do not rely on Contractor’s being familiar with the complexities of VAT. Their legal position is to charge VAT in full unless evidence of reduced rating is presented to them and this case shows the difficulty of unravelling invoices at project completion.
This case also showed how strictly the Completion Test is applied and that works past this date are likely to be excluded from a claim.