VCONST24200 - DIY builders and converters VAT Refund Scheme - eligibility of claims: condition 2: were relevant works carried out?
Relevant works
The construction of a building: what sort of building will qualify for a VAT refund?
What do we mean by the construction of a building?
Non-residential conversions - what conversions will qualify for a VAT refund?
What is a non-residential building?
Garage conversions
Apportionment
Relevant works
There are two broad categories of relevant works:
- the construction of a building
- non-residential conversions.
In either case, the work must result in a building.
In Dr J Parkinson (VTD 17257) the appellant converted a disused Thames lighter into a houseboat. The Tribunal agreed that the houseboat was not a building. Therefore, the work wasn’t within the Refund Scheme.
A similar result occurred in Rachel Jacobs (VTD 18367) which concerned the conversion of a ship into a residence.
The construction of a building: what sort of building will qualify for a VAT refund?
Claims can be made in connection with the construction of three types of building:
- a building designed as a dwelling or number of dwellings (VCONST14000)
- a building intended for use solely for a relevant residential purpose (VCONST15000)
- a building intended for use solely for a relevant charitable purpose (VCONST16000).
Note: But not a building intended for use as a village hall or similarly. Such a use is in the course or furtherance of a business and makes the building ineligible for the Scheme (VCONST24350).
In J A Moore (VTD 15972) the appellant converted a barn into a building ‘designed as a dwelling’. He also converted two other barns into a recreation complex. The Tribunal agreed that a claim couldn’t be made for the recreation complex, as this wasn’t a qualifying type of building (it wasn’t a building ‘designed as a dwelling’).
The relevant works must create a dwelling that is contained within a single building (with the exception of the garage that can be a separate building). This doesn’t apply to relevant residential buildings where the establishment can be in a number of buildings.
Where only part of a building qualifies, an apportionment should be made.
What do we mean by the construction of a building?
The Refund Scheme uses the same definitions as the construction zero rate provisions (VCONST02200).
The guidance at VCONST02200 applies in the same way to this section as it does to that section.
Non-residential conversions - what conversions will qualify for a VAT refund?
Claims can be made in connection with the conversion of a non-residential building (or non-residential part of a building).
The conversion must be into a building:
- that is designed as a dwelling or number of dwellings (VCONST14000)
or
- that is intended for use solely for a relevant residential purpose (VCONST15000)
or
- that can be either (or both) of the above, if different parts of a building are treated as separate buildings.
Note: The conversion into a building intended for use solely for a relevant charitable purpose is not within the scope of the Refund Scheme. This treatment is equitable with the treatment of similar conversions under Item 1 of Group 5 Schedule 8: there is no zero rate for the sale or long lease of such buildings.
What is a non-residential building?
The Refund Scheme uses the same definitions as the construction zero rate provisions (VCONST04400).
The relevant provision that defines ‘non-residential’ (Value Added Tax Act 1994, Schedule 8, Group 5, Note 7A) and generally applies in the same way to this section as it does to VCONST04410.
Converting both a residential part and a non-residential part of a building into a single dwelling (or for a relevant residential purpose) does not amount to a non-residential conversion. This has been confirmed by the Court of Appeal in Lady Blom-Cooper ([2003] STC 669). All such claims are to be refused.
However, following the Court of Appeal judgement in Ivor Jacobs ([2005] EWCA Civ 930), HMRC now accepts that, for the purposes of the DIY Refund Scheme, the conversion of a building that contains both a residential part and a non-residential part comes within the scope of the Scheme so long as the conversion results in an additional dwelling being created. For the purposes of the Scheme (but not the zero rate), it is no longer necessary for the additional dwelling to be created exclusively from the non-residential part. However, VAT recovery is restricted to the conversion of the non-residential part.
Garage conversions
The term ‘garage’ not only covers buildings designed to store motor vehicles but also buildings such as barns, to the extent that they are used as garages.
A garage that is occupied together with a dwelling is not ‘non-residential’. Its conversion to a qualifying building will not be eligible for the Refund Scheme. However, if it can be demonstrated that the garage hasn’t been used to store motor vehicles within the 10 years preceding conversion or that it isn’t currently occupied together with a dwelling, then the garage is ‘non-residential’. Its conversion to a qualifying building will be eligible for the Refund Scheme.
Regardless of whether a building (or part of a building) has been used as a garage, once it no longer is occupied together with a garage (ie because it has been sold separately) it will always be treated as a non-residential building.
Please note that if only part of a building is used as a garage, the conversion of the building into a qualifying building won’t be eligible for the Refund Scheme unless Ivor Jacobs can be followed.
Apportionment
The construction or conversion of a building may result in a building where parts are put wholly to a qualifying residential use and parts are put wholly to a non-qualifying use, such as a:
- shop with a flat above
or
- house with bed and breakfast accommodation attached.
Claims can only be made for the qualifying parts.