O' Donnell v Revenue & Customs [2010] UKFTT 236 (TC) (21 May 2010)

DECISION

1. This is an appeal by Michael O’Donnell (“Mr O’Donnell”) against a Decision of the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) to refuse, in part, a Value Added Tax ("VAT") refund under a DIY builders claim made by Mr O’Donnell in accordance with Section 35 of the Value Added Tax Act 1994 ("the Act").

2. The appeal was heard in George House, 126 George Street, Edinburgh on 21 April 2010. Mr O’Donnell appeared on his own behalf. HMRC was represented by Ms Kim Tilling.

3. The following productions were before the Tribunal –

A. Decision dated 9 July 2009

B. Notice of Appeal

C. HMRC Statement of Case

D. Claim form for VAT refund

E. Disputed invoices

F. Public Notice 719

also correspondence between Mr O’Donnell and HMRC over the relevant period.

4. Mr O’Donnell gave evidence on his own behalf, and Ms Tilling adopted a written statement covering the evidence of Ms Pledger, who had investigated Mr O’Donnell’s claim.

Material Facts

5. The material facts were not in dispute and are as follows –

(1) Mr O'Donnell constructed a dwellinghouse for himself at Burifa, Brough, Thurso, Caithness.

(2) On 14 April 2009 Mr O'Donnell submitted a claim under the DIY Builders and Converters Refund Scheme for a refund in the total sum of £34,199.18 in respect of VAT incurred in the construction of the said dwellinghouse. The form was headed “VAT refunds for DIY builders and converters” and required the listing of “goods, materials and services”.

(3) By letter dated 28 May 2009 HMRC notified Mr O'Donnell of their decision to allow the claim in the sum of £9,689.52, but to disallow that part of the claim which related to invoices totalling £24,509.66.

(4) The disallowed invoices included the following -

(a) Gmack Construction for materials of £27,269.07 and labour of £22,000 with VAT of £8,622.16. The materials were not specified.

(b) Lochshell Engineering for the supply of materials and the manufacture and installation of steelwork of £11,522.75 with VAT of £2,016.48.

(d) Lochshell Engineering for the supply of materials and the manufacture of steelwork of £2,706.05 with VAT of £473.55.

(e) Lochshell Engineering for the replacement of three brackets, including collection of equipment and crane hire £397.50 with VAT of £69.56.

Statutory Provisions

6. The Act contains the following provisions –

Section 30 – Zero-rating

30(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section

(a) no VAT shall be charged on the supply; but

(b) it shall in all other respects be treated as a taxable supply;

and accordingly the rate at which VAT is treated as charged on the supply shall be nil.

30(2) A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.

Within Schedule 8, Group 5 includes the following items –

2 The supply in the course of the construction of

(a) a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or

(b) any civil engineering work necessary for the development of a permanent park for residential caravans, of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

4. The supply of building materials to a person to whom the supplier is supplying services within item 2 or 3 of this Group which include the incorporation of the materials into the building (or its site) in question.

Section 35, which is headed “Refund of VAT to persons constructing certain buildings” provides –

35(1) Where

(a) a person carries out works to which this section applies,

(b) his carrying out of the works is lawful and otherwise than in the course or furtherance of any business, and

(c) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works, the Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.

35(1A) The works to which this section applies are

(a) the construction of a building designed as a dwelling or number of dwellings;

(b) the construction of a building for use solely for a relevant residential purpose or relevant charitable purpose; and

35(1B) For the purposes of this section goods shall be treated as used for the purposes of works to which this section applies by the person carrying out the works in so far only as they are building materials which, in the course of the works, are incorporated in the building in question or its site.

35(2) The Commissioners shall not be required to entertain a claim for a refund of VAT under this section unless the claim

(a) is made within such time and in such form and manner; and

(b) contains such information; and

(c) is accompanied by such documents, whether by way of evidence or otherwise, as the Commissioners may by regulations prescribe or, in the case of documents, as the Commissioners may determine in accordance with the regulations.

Submissions

7. Reference was made to the following prior decisions Mrs Elizabeth Banks (LON/93/2845) VTD 12004 (unreported), Christopher John Allen (MAN/00/752) VTD 17342 (unreported), Philip Simon George (MAN/06/0594) VTD 20400 (unreported) and Geoffrey Williams (EDN/08/132) [2009] UKFTT 96 (TC).

8. In his submission to the Tribunal, Mr O’Donnell confined his appeal to the invoices from Gmack Construction and the three invoices from Lochshell Engineering referred to above.

9. Mr O’Donnell contended as follows –

10. He carried on business with his son involving woodworking machinery and video production. The business was registered for VAT but was not very active.

11. His new dwellinghouse was on a “green field” site. It was very well insulated with much glass and eco friendly to run. Prior to commencing building, he had contacted the VAT helpline, and was informed that he did not require to take any action at that time; but when he had finished his construction work, he should send in a completed form with all his vouchers. He did not receive any leaflet for DIY builders. Mr O’Donnell explained that he was then unaware of zero rating and that all the tradesmen whom he employed had insisted in adding VAT at the full rate.

12. Following HMRC’s decision to restrict his claim, the majority of suppliers had refunded the VAT to him. However he had disputes with both Gmack Construction and Lochshell Engineering and neither of these companies was prepared to refund the VAT to him.

13. Mr O’Donnell claimed that he had been treated differently from other self-build housebuilders in his area, and that he should have been sent a leaflet in response to his telephone call. He pointed out that the form which he had completed contained a request for details of “goods, materials and services”, and that the form had since been changed.

14. In addressing the Tribunal, Ms Tilling explained that the claim form which Mr O’Donnell completed covered both new house building and the conversion of an existing building, and she pointed out that whereas a person who has converted an existing building may apply for a partial repayment of VAT in respect of services, there is no corresponding provision in respect of a new DIY building. There is now a separate form for new house building.

15. Ms Tilling pointed out in regard to Gmack Construction and Lochshell Engineering that the claims related to both materials and services. The hire of a crane was not a “building material”. She was also critical of the Gmack Construction statement because it did not contain the word “invoice”, as is required, and that there was no breakdown of the materials which had been supplied.

16. Section 35 provides for the refund of VAT to a DIY housebuilder where “VAT is chargeable……”. However, s 30 together with Schedule 8 of the Act provide that where services are supplied (and this specifically includes goods and services) in relation to the construction of a dwellinghouse, that supply is zero-rated and no VAT shall be charged on the supply. Ms Tilling submitted that in these circumstances, VAT was not “chargeable” even although it may have in fact been paid.

17. Ms Tilling referred to the claim form which had been signed by Mr McDonnell. The form contained a declaration that the claimant had read Notice 719. This Notice contains a warning at paragraph 2.2 that “if you construct a new eligible building you can only claim for VAT on those ‘building materials’ incorporated in the building”; also “Take care to ensure that you are charged the correct amount of VAT, as you can only reclaim VAT that has been correctly charged”. At paragraph 12.4, it was further stated that “VAT that has been charged 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”.

18. In reply, Mr O’Donnell claimed that the legislation had intended to put a DIY builder in the same position as a VAT registered builder. He complained about the inadequate provision for a self builder to be informed. He accepted the invoice from Gmack Construction in good faith; and that he personally did not hire the crane which was referred to in the final invoice from Lochshell Engineering. He was now in a position that he was unable to recover the VAT back from Gmack Construction and Lochshell Engineering.

Reasons

19. It was accepted from Mr O’Donnell’s evidence that he telephoned the VAT helpline, that he had the continuing impression that he should pay on such invoices that might be rendered upon him, and that at the conclusion of the building works, he would be able to reclaim VAT which he had paid. However, in the absence of any record of what was said at that time, there can be no finding that Mr O’Donnell was given incorrect or misleading information.

20. Broadly, the legislation does confer on the DIY builder the same relief from VAT that is available on a building contract carried out by a registered builder, except that the DIY builder must distinguish between (1) the supply of materials and (2) the supply of services (which may also include the supply of materials). In the former case, the legislation permits the DIY builder to reclaim the VAT which he has paid; and indeed Mr O’Donnell recovered VAT amounting to £9,689.52.

21. However, in the second case, it is clear from s 30 and schedule 8 of the Act that the supply of services for the construction of a dwellinghouse is zero-rated, and that “no tax shall be charged on the supply”; and that the consequence of this is that no VAT is chargeable such that a refund can be claimed under s 35. Item 4 within Group 5 of Schedule 8 clearly states that where the supply is of materials and services, it is to be regarded as the same as a supply of services only.

22. HMRC acted in accordance with the legislation in refusing Mr O’Donnell’s claim for a refund in respect of the services (and materials) supplied by Gmack Construction and Lochshell Engineering. It is therefore appropriate that the appeal should be dismissed. As noted above those suppliers should correct it.

23. Nevertheless, the Tribunal has considerable sympathy for Mr O’Donnell in that he finds himself unable to obtain repayment of VAT from two of his suppliers and that the legislation precludes any refund from HMRC in the particular circumstances. However, Notice 719 did set out clearly the situation regarding the provision of services for DIY builders. This information was publicly available.

24. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

MR JOHN M BARTON, WS

TRIBUNAL JUDGE

RELEASE DATE: 21 MAY 2010

First-tier Tribunal (Tax)

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (VAT) Respondents

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> O' Donnell v Revenue & Customs [2010] UKFTT 236 (TC) (21 May 2010) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00535.html Cite as: [2010] UKFTT 236 (TC)