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Steve Allen of VAT Advisers Ltd highlights an important VAT case for DIY claimants.

Introduction

A recent VAT Tribunal case has reinforced the need for DIY claimants to ensure that suppliers charge them the correct rate of VAT on qualifying goods and services. In Michael Roy Culverwell (TC00222), the Appellant was charged standard-rated VAT on the supply and installation of doors and windows for his new home, which was completed in May 2008. The disputed VAT of £826.16 was incurred on two invoices dated in 2005. 

The Appellant submitted a VAT refund claim to HMRC a few weeks after completion, and was repaid the vast majority of it. However, HMRC refused to repay the £826.16 on the basis that the two invoices should have been zero-rated.

The letter from HMRC cited the contents of Section 12.4 of (the now withdrawn) Public Notice 719, which states:

"What if I had been charged an incorrect amount of VAT?

VAT in error cannot be claimed from Customs and Excise. When an error occurs, such as when VAT is charged on work that should be zero-rated, your supplier must correct it."

Second Try

The Appellant contacted the suppliers to request credit notes and cheques for the VAT wrongly charged, but was told that as the invoices were more than three years old, credit notes could not be issued under the capping rules. In view of this, the Appellant wrote back to HMRC asking for reconsideration of the refusal. He explained that the £826.16 VAT was now capped, and that a refund by HMRC would avoid him having to take the builders to the Small Claims Court to recover the VAT amount. HMRC refused the refund, once again citing section 12.4 of Notice 719 and adding that there is no provision in law for HMRC to refund incorrectly charged VAT.

Appeal to the Tribunal

The Appellant appealed the matter to the Tribunal, which held that the supplies should have been zero-rated, and as such, HMRC was unable to use VAT Act 1994 s 35 (which covers the DIY Scheme) to refund the VAT. The Tribunal said HMRC had acted correctly in accordance with the law, and followed the decisions in RJ Vincett (VTD 10,932), PS George (20,400) and D O’Reilly (10,945), which were all on the same issue.

Conclusion

The case shows how important it is for DIY claimants to check through their invoices to see if VAT has been incorrectly charged on any zero-rated supplies of services. It is equally important to do those checks as and when the invoices are received, as this should ensure that any wrongly charged VAT is identified before the invoice is more than three years old. That way, suppliers will still be able to refund the VAT with a credit note and cheque. Although Notice 719 was withdrawn by HMRC in August 2009, HMRC have included similar guidance to Section 12.4 in the replacement forms VAT431NB and VAT431C.

Although the Appellant lost the appeal, fortunately for him, the amount concerned was not significant.  However, it could just as easily have been the VAT charged on his largest invoices, and that is the thing to remember when compiling a future DIY claim.