VAT reclaim without VAT registered builder

[steveoutbush]

I am having an extension added to my Grade II listed cottage, works that are eligable for zero VAT rating.

However, because none of the individuals who are working on it are VAT registered and I am paying all the labour and materials directly, I have just discovered (too late) that I can't reclaim any VAT back on the materials - this can only be done by a VAT registered builder.

It seems wrong - and is clearly a rule that discriminates against the smaller builder who is not earning enough to pass the threshold. I don't see why I should force him into registering, which is what the architect suggested.

Has anyone successfully challenged this discriminatory rule through the Tribunal ?

[SeanJames]

In short, no.

When you say that its discriminatory, why?

If you've bought materials yourself, you hold no evidence as to where those materials are to be installed to. You are treated in the exact same manner as that as someone who does not own a protected property, and as such, its hardly discrimination, if you are treated the same as other home owners.

The zero-rating only applies where you have someone undertake alteration work on the property due to nature of the property.

You also can not force someone to become VAT registered as you may find that they won't do the work for you.

Unfortunately, the VAT is applicable, and cost you must incur.

Sean

[steveoutbush]

Sean,

Many thanks for the reply but I am still somewhat puzzled.

The discrimination appears to be against the builder, not me. He is at a distinct disadvantage in competition against a VAT registered builder. He asked if I was going to withdraw the work from him now that I had learnt I might save thousands of pounds automatically by using a VAT registered builder - that's what I meant by effectively forcing him to register (or he faces 4 months without work).

I don't understand your point about evidence of where the materials are to be used. Why would evidence be different when using a VAT registered builder (who would not charge me VAT) than if (for a different project) I were claiming VAT back under the self-build/DIY scheme ?

Stephen.

[SeanJames]

Right,

He's not really at a disadvantage against a VAT registered builder because either way you're not being charged VAT by the supplier, subject to the work being zero-rated under section 9.1.2 of 708; As such, there is no discrimination. The VAT is charged to the builder on any materials that he purchases and it is a cost that he absorbs, you're not being charged VAT, you're being charged for the builders services. If there is no VAT involved then there is no further cost to you, and nothing for you to reclaim.

The whole point about evidence of where the materials being used is that the zero-rating is only applicable where a VAT registered builder could prove to HMRC that the materials he used along with his service was put to use on a protected property and alteration work qualified for zero-rating. As the builder would have evidence of protected status, evidence of approval and evidence of any works, they should also be able to evidence that they bought a door to put into a door opening created in a protected building. If you were to buy such a door, and you were to knock the wall through yourself, and put that door in place, how do you prove to the supplier (say B&Q) that the door that you bought was put into that property? As such, the zero-rating is only applicable where a VAT registered contractor/builder supplies their services in the course of an alteration to a protected property, any materials you buy in yourself are standard-rated, and unfortunately non-recoverable (unless the protected building is being converted to residential use or has been empty for 10 years or more, then you are eligible under the DIY claim route)

You may feel that the whole process is unfair, however, the zero-rating is only applicable where a VAT registered contractor undertakes the work. If the non-registered contractor doesn't like this, then they can register for VAT under a voluntary basis and go from there. Once more, no discrimination as they have the option to become VAT registered, but assuming their turnover is less than £67000 over 12 months, they've chosen not to, and as such can not really claim discrimination (or have people claim discrimination on their behalf)

Sorry if I sound sarcastic, but I really don't see the whole discrimination argument myself.

Sean

[steveoutbush]

I feel we are talking at cross-purposes but I can't think of a better way of explaining myself.

I am just talking about the VAT on the materials used on the works, money that the law says I need not pay but only as long as I don't choose a builder who is not VAT registered and that I don't do the work myself. It is clearly OK in certain types of not listed buildings but never OK in a case involving a Listed Building. It's almost as though VAT registration actually qualifies an operator to work on listed buildings, which would obviously be nonsense.

Your argument about evidence I'm afraid I don't follow - I must be missing something basic. How does the VAT registered builder prove to HMRC that the materials he used along with his service was put to use on the qualifying property any better than I can prove it ?

I'm not arguing about what the rules are, rather that there appears to be a hole in the logic behind the rules. This I am sure you will accept is not uncommon in the law, moreover I would assume you would also agree that holes are even quite likely to occur in quite recent laws such as the ones we are discussing since they have not had a chance to be tested.

Stephen

[SeanJames]

Steve,

Can you clarify as to where the law states:

money that the law says I need not pay but only as long as I don't choose a builder who is not VAT registered and that I don't do the work myself.

As the law states that in Group 6 of the VAT Act 1994 under item number 2

The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.

Which is the point I've been trying to make. The service of someone VAT registered is the only applicable zero-rating where you have a protected building. As you have a protected building and you've employed someone to do the work for you, this will either be:

a/ zero-rated subject to conditions met, and your building being VAT registered
b/ free from VAT as your builder is not VAT registered

If you've purchased goods yourself, then this does not meet the points above because you have purchased goods, and not a service.

Evidence comes in where HMRC would decide to do an inspection visit on a VAT registered business that you would employ to do the work for you. As HMRC do not visit non-taxable persons (unless there is some tax evasion issues on hand) you would not have the evidence to recover the VAT, and referring to back to the above italics, you do not have a legal right to recover the VAT on any materials that you purchase any way.

There is no hole in the law, the law clearly states that only services are allowable for VAT zero-rating, a VAT registered person would apply the service of altering your protected property by adding an extension, in the means of altering the property they would supply their own materials, the supply of the materials falls under their service of the alteration, as such the service would be zero-rated.

Unfortunately, you fall into the clasp of people that are not entitled to recover the VAT if you have purchased the materials yourself.

Bringing me to the point of:

It is clearly OK in certain types of not listed buildings but never OK in a case involving a Listed Building.

If you were to buy your own materials, you can only recover VAT on properties that are newly built, or are being converted to residential use, or have been empty for 10 years or more. You may be eligible for reduced rate VAT at 5% on properties that are being converted to residential use, or empty for 2 years or more. If anything, you having a protected property puts you at a distinct advantage in certain VAT areas because anyone without a protected property would have to pay VAT on the construction of an extension, where-as you would not if you employed a VAT registered builder.

Unfortunately (again), the law is crystal clear on this, the VAT is applicable, as you don't fall into any category you can not recover the VAT charged to you on any materials you've bought yourself. Even if your builder was VAT registered and you had bought your own materials, you wouldn't be able to then. It all has to come through the builder in their service to you of constructing your extension.

Sean

[steveoutbush]

Sean,

I know the law doesn't state it - I am just extrapolating the consequences of the stated law - you can see the inconsistent nature of the principle of the laws surely ? I suspect you aren't really able to agree here publicly.

It would make sense for me to be allowed to get the VAT back on the materials under some rule wouldn't it ? Just like the DIY'ers can with some of their projects. Just need to combine the self-build rules with the Listed Buildings rules a bit. After all it's all designed to assist with the massive financial burden of owning a listed building. No wonder many get demolished if the law encourages such action.

It's so silly for HMRC to catch people out like this just because they don't find out the complex rules in time.

No need to reply.
Thanks for trying to help.

[SeanJames]

As a matter of course, I don't see it as inconsistent hence the vehemence of my replies, and it is not HMRC that have decided this course of action, it is actually the group of MPs that have granted this course in their drafting of the VAT Act. HMRC is there to ensure the correction collection on behalf of the Treasury.

Sean