The First-tier Tribunal’s decision in Jones v Revenue & Customs Commissioners (published on 28 August 2012,  UKFTT 503 (TC)) confirms that VAT can be reclaimed under the DIY Housebuilders Scheme (“the Scheme”), despite the existence of certain planning restrictions on the building.
The Scheme is one of the most lucrative for private individuals. Usually only VAT registered businesses can reclaim input VAT from HMRC. However, those private individuals who construct (build or convert) their own homes are also entitled to reclaim VAT on purchases incurred in the construction of the property.
Nevertheless, a claim cannot be made under the Scheme where the separate use or disposal of the dwelling is prohibited by the terms of any covenant, statutory planning consent or similar provision.
Stroud District Council had imposed restrictions under Section 106 of the Town and Country Planning Act 1990 on a barn-conversion and office. The office could not be occupied by anyone other than the occupier of the residential barn-conversion; and the barn-conversion could not be supplied separately from the office and vice versa. On this basis, HMRC contended that there could be no VAT refund under the Scheme.
The Tribunal concluded that the restriction on use applied only to the office and not to the residential barn-conversion. Considering the barn-conversion separately, the Tribunal held that the Council had not restricted the residential use, lease or sale of it and found that the taxpayer was therefore entitled to a VAT refund under the Scheme for VAT incurred in converting the barn to residential use. The owner agreed not to reclaim VAT in relation to the office.
This case highlights the importance of understanding planning applications and permission as they relate to VAT.