How to challenge VAT rules

asdv

Does anyone know how I go about challenging the rules on VAT ?
I need to claim back VAT paid on materials used in zero rated works to my house, a listed building, but the rules don't allow me to make the claim because I did the work myself.

I know there is a tribunal that judges cases but how do I get to it ?

Debt_Free_Chick

asdv wrote: »

I know there is a tribunal that judges cases but how do I get to it ?

Here

You have to go through the HMRC route first and you may not have the right of appeal.

asdv

Thank you.
The national VAT advice helpline has twice advised me that the only recourse I have is to get the law changed by going through my local MP.
I have spoken to the Adjudicator's Office but they only deal with official complaints about HMRC and HMRC don't accept complaints about the rules.
I was wondering if perhaps the rules might be illegal under EU law. Certainly seems likely as it seems very uncharacteristic of a normal modern democratic government to make laws that effectively 'forces' home-owners not to do certain works as a self-build.

All the other people out that have fallen foul of the same laws please let me know - it might result in a better campaign going to get this corrected.

lincroft1710

Certain aspects of British law are exempt from EU interference so you may not have much luck in this direction.

Also have you noticed that where electrical/gas installations are involved, legislation forces you to have these works done by qualified person, will this be extended to other fields of building work?

JasonLVC

asdv wrote: »

Does anyone know how I go about challenging the rules on VAT ?
I need to claim back VAT paid on materials used in zero rated works to my house, a listed building, but the rules don't allow me to make the claim because I did the work myself.

I know there is a tribunal that judges cases but how do I get to it ?

What exactly have you done here - If you can give a little more detail I might be able to help you further. In the meantime....

You cannot reclaim input tax on zero rated expenditure (there's no VAT on it). If you have incurred the expenditure yourself then this is not coveed by the rules (there is scope under self-build/DIY scheme but that doesn't work here as the DIY scheme is about creating a NEW dwelling not doing work to an existing one).

Zero rating entitlement on listed building is quite complex - elements of maintenance or repair are not covered by the rules whereas adaptions and structural alteration will be. A repair to the roof or window is not zero ratable whereas altering a roof pitch or installing a new window where there was just a wall before will be covered.

Unless the value is substantial it may be a very costly waste of time for you going down the tribunal route. I take it you are not VAT registered so you are going to struggle with getting a tribunal hearing when you are not VAT registered.

If you think the UK law is ultra-vires then you would have to submit a compliant to the EU direct and let them deal with it - but as you can imagine, the wait time may be many months/years before you get anywhere, if at all.

Finally, as zero rating is a UK only concession, the EU may simply refer any query back to the UK for consideration as it is a unique piece of UK VAT legislation.

asdv

lincroft1710 wrote: »

Certain aspects of British law are exempt from EU interference so you may not have much luck in this direction.

Yes, I believe a lot to do with carbon emission reduction in homes escapes EU law in the case of listed buildings. There is very little scope to allow improvements in thermal insulation for instance. I have had to fit two new single-glazed windows in the new extension.

lincroft1710 wrote: »

Also have you noticed that where electrical/gas installations are involved, legislation forces you to have these works done by qualified person, will this be extended to other fields of building work?

I will be using fulling qualified people for necessary certification.

asdv

JasonLVC,

Thanks for your information. I will try and elucidate a bit more:

I am voluntarily VAT registered in my own profession as a sole trader, but I am not in the building industry. For the purposes of the works to my cottage I am not VAT registered.
I estimate I'm paying out at least 6000 pounds of VAT on just materials for the alterations. Eg. thousands of new hand-made clay tiles - part of the conditions of the building consent require that I replace all the existing tiles on the house on the street-side elevation with the same as those going on the new extension roof. I am using one or two contractors, I think the electrician may be VAT registered, but the heating engineer probably is not (fully qualified tradesmen will do the tasks that require certification, of course), but mainly it's in the purchase of all materials that is the problem. None of the materials purchased for the work constitutes repair or maintenance as far as I can see, so should all be VAT free in principle. They all are detailed in the drawings and specification approved by building control, conservation area consent, listed building consent, planning permission. As far as I can understand I am only permitted to benefit from zero VAT if I pay a VAT registered builder do the entire project which is a bizarre and unreasonable condition that I think should be contested. There are cases closely related to this that have recently successfully over-ruled VAT law. For example HMRC were successfully challenged when they tried to prevent zero rating for certain works to garage outbuildings even when those buildings formed part of the original building scheme as the listed building to which they belong. Rules are only rules. They should be contested when they go wrong or cease to be relevant.

JasonLVC

asdv - There's a whole lot of different things going on in your post and you may be cross-referencing different parts of the VAT legislation which is where the confusion is coming from.

Self-Build/DIY Scheme. This enables an individual to build a new dwelling and reclaim all the VAT back to put the individual in the same position as if they had purchased a new house off of a house developer. The rules for this are very tight, one of which is that the dwelling has to be new - an extension is not a new dwelling, it is an extension to an existing dwelling.

There is case law on some people having an extension being zero rated under self-build rules on the basis the extension is actually more like an annexe (and an annexe is basically a buildiong that is capable of operation independant to that of the building it is attached to - so will have its own entrance and no direct access to the existing building) -

So I don't think we can use self build/DIY rules to get your extension works zero rated as is not a seperate, new dwelling.

Listed Building Consent. VAT can be applied at the zero rate when certain works related to listed buildings are undertaken by contractors. An extension to an existing property may certainly achieve zero rating on some of the works on the basis they are approved alterations but will be dependant upon those works being supplied by VAT registered contractors.

If you buy materials yourself then these are not going to be recoverable by you as you can only recover such VAT under the self-build rules (and your works are not a new dwelling so don't come under that legislation).

There may be mileage is sourcing the supplies/price yourself but then agreeing with the contractors to buy the supplies for you at cost with no mark-up - nothing dodgy about that and the contractor shouldn't have an issue with this.

I'd guess that the tiles on the extension may very well be zero rated but the ones replacing the existing ones will not be zero rated as that is straight repair/replacement, not an actual alteration (going from tile to thatch or vice versa would be okay, but not like for like if you know what I mean).

Whilst the extension itself may be zero rated, there may be some works where the extension joins the existing and any remedial work to walls/plaster may also be zero rated, but will depend upon the plans/design and whether those kind of works are 'make good following works' or just straight tarting up of walls between the two buildings.

If you've not already done so, visit this link http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000513&propertyType=document

Notice 708, look at Section 9 which deals with zero rating works on listed buildings and is a good 'laymens' guide as to what is and isn't valid in terms of works being done.

Garage Works - You mention a case about garages being zero rated. This is a popular area of VAT law and HMRC isued a business brief on it a few years back :- http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_PROD1_024255&propertyType=document#P75_7562

The more recent case involved the conversion of outbuildings to residential dwellings and HMRC denied the zero rating - not becuase the conversion from commercial to residential was not valid (becuase it was a conversion to a dwelling which can be zero rated) but becuase the planning consent for the works stipulated that the dwellings could not be seperatly disposed of (that is, the dwellings could only be sold if the main house was sold at the same time) - planning consent conditions play a HUGE part in whether VAT can be reclaimed or be charged and in this case, becuase the dwellings couldn't be disposed of in their own right the zero rating is denied as they were not seen as 'proper' dwellings' if they cannot be freely sold.??!?!?!

The only other way to reclaim input tax on goods is if they are for a business purpose, but seeing as this is your own home, that's not going to work either.

Have a word with the contractors to see if they'll supply materials at cost (or indeed, let them put a 5% markup on it as if they supply them to you in the course of them fitting the goods, some of the cost will be zero rated - so you may save £500 by buying direct yourself but then losing out on £1000 VAT savings by not letting a builder do it for you.

Sounds like a big project though - are you going to feature on Grand Designs anytime in the future?.

JasonLVC

The problem with challenging this is that you need to kick start this all off by writing to HMRC and asking for a "ruling" - which is a way of requesting clarification on a matter for non-business related transactions.

HMRC's ruling team will write back and most likely refer you to Notice 708 (as above) and then ask you to re-read it. You will then write to them again, explaining in more detail as to why the Notice is not helping you in your particular situation.

HMRC will then seek to make a ruling (but only if your question is not covered by the Notice 708) and will then be binding. There is not usually an appeals procedure per se, but you can seek to go to tribunal thereafter to put your point across.

HMRC rarely ask for costs unless the case is particularly vexatious (which yours will not be) so it'll only cost you your time and if you need help, the cost of an expert/accountant, etc. Tribunals are heard in London, Birmingham and Manchester so there may also be some travel involved.

You could then appeal the Tribunals outcome if they have erred in law and then go to the High Court - but this is when it gets really expensive so you really do not want to go there as you will need Tax Counsel (ie, expensive) to survive the day. Then you can go to Brussels as a last resort.

Here's the Notice on applying for a ruling :-

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000874&propertyType=document#P37_2976

I'm not sure if they post the address in that document, but it is a PO Box address in Southend where all such requests go to.

asdv

Thank you for your detailed reply. I'll need time to re-read a few times, look at the links and digest.

I was particularly interested in the info about applying for a ruling - I yesterday wrote to the Southend-on-Sea VAT office but perhaps not in the right vein. Armed with your info I can do better there.

I know most of the works are eligible for zero rating as my architect is an expert in historic buildings and advised they would be, but he advised too late, after I had gone beyond the point of being able to give the job to a VAT reg'd contractor.

I think the basic issue I am focusing on is one of unfairness - the specific requirement to have a VAT registered contractor do the work. I only mentioned the DIY scheme in order to illustrate that law is already in place for non-registered individuals to benefit from lower or zero rating, so where is the logicality of insisting on VAT reg'd contractors for 'protected' buildings ?

I won't be on Grand Designs - it's not that big a job, just very expensive because of the listed building status. The house is an uninteresting two-up-two-down terraced cottage built in random stone rubble, now (almost) back to three-up-three-down as it was before a bomb destroyed one end of it. The entire re-tiling of one side of the roof is purely a cosmetic condition of the consent and not a necessary repair or maintenance job (the cement tiles are in perfectly good condition) so we believe it would all have been eligible. We hope to fit some insulation under the roof at the same time and that I believe is eligible now due to a recent ruling in the VAT Tribunal that found against HMRC.