Policy paper

VAT: Digitisation of claims and extending time limit for DIY Housebuilders Scheme

Published 13 November 2023

Who is likely to be affected

Any person who is building their own home, or converting a non-residential building to their own home, and who wishes to reclaim the VAT incurred.

The VAT DIY Housebuilders Scheme covers both entirely self-build housing and the self-build element of custom housebuilding.

General description of the measure

In the case of a custom build, the section of the build which is undertaken by a builder or developer will not be subject to VAT at all, as it falls under the zero rating for new construction. Under the DIY Scheme, the claimant can then reclaim the VAT they pay on building materials for the section of the build which they undertake themselves.

The overall purpose of this measure is to provide individuals building their own home, or converting a non-residential building to their own home, with the option of submitting their DIY housebuilders VAT refund claim digitally. It will also extend the time limit for such claims from 3 months to 6 months after completion of the build.

The digitisation of claims for the scheme should make administration easier for both HMRC and the claimant. The existing process for making paper-based claims will remain as an option for those that wish to use it.

Extending the time limit will allow claimants more time to gather their documents and complete their claim, which should result in fewer omissions or errors.

Policy objective

The introduction of a digital claims process for the scheme is in keeping with HMRC’s goal to make tax digital. This will make it easier for claimants to reclaim their VAT. As well as having handy hints, the digital claim form will have functions to minimise errors and help claimants get their claims right.

Invoices will no longer be required at the time of submitting a claim. This will simplify the process for making a claim for the claimant, saving time when submitting their claim.

Under the scheme, claimants can only make a single claim. Extending the time limit from 3 months to 6 months to make a claim will provide the claimant with more time to get all the information required to make the claim, minimising omissions and errors.

The digitisation of the scheme will help HMRC process claims more efficiently.

Background to the measure

The scheme was introduced in 1977 and has undergone little change since then.

Digitisation of the claims procedure for the scheme is in line with HMRC’s goal of making tax digital and has been requested by stakeholder groups.

The digitisation and extension to the time limits for the scheme was announced in the Spring Budget 2023.

Detailed proposal

Operative date

The changes will be implemented legislatively through a negative Statutory Instrument (SI) and will come into force on 5 December 2023 for claims made on or after that date.

Current law

Currently:

• VAT reg 201(a) (SI1995/2518) provides a claim must be made no later than 3 months after the completion of the building
• VAT reg 201(b) (SI1995/2518) details documents that must be provided at the time of submitting a claim
• VAT reg 201A (SI1995/2518) specifies the relevant (paper) forms for the purposes of a claim
• VAT reg 4B (SI 1995/2518) lists specified communications that may be made to HMRC Commissioners using an electronic communications system
• the vires for this negative procedure SI are section 35 of the VAT Act 1994 and section 132 of the Finance Act 1999

Proposed revisions

The SI will:

• provide claimants with the option to file claims for a VAT refund under the scheme electronically
• extend the time limit for claimants to make a claim under the scheme from 3 months to 6 months from the completion date of the build
• amend the list of documents required to be submitted at the time of the claim to omit invoices, but include such evidence relating to the residential conversion from a derelict building or shell as may be specified by HMRC in a public notice
• provide that a claim is to be made on a form that is specified in a notice published by HMRC Commissioners

Summary of impacts

Exchequer impact (£ million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure will impact individuals building their own home, or converting a non-residential building to their own home, by giving them the option to submit their DIY housebuilders VAT refund claim digitally. It will extend the time limit for submitting DIY housebuilders claims from 3 months to 6 months after completion of the build.

This is expected to make the process easier for claimants and allow more time to help them get their claims right. The existing paper-based process will be retained for those that wish to use it.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on those in groups sharing protected characteristics as the digital service will be an alternative to the existing process of making paper-based claims, which will remain in place for those who may be unable to use the digital service.

Impact on business including civil society organisations

This measure is not expected to impact on businesses or civil society organisations as it only impacts individuals building their own home.

Operational impact (£ million) (HMRC or other)

This measure amends current legislation to allow claims to be made digitally. It removes the requirement to provide invoices at the time of a claim, requires evidence to substantiate conversion claims, and extends the time limits for submitting claims.

The additional time for making a claim should increase the accuracy of claims, removing the need for additional correspondence.

The measure will remove the need for HMRC to store invoices.

It is anticipated to have a positive operational impact on HMRC, allowing HMRC to progress claims more efficiently.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with stakeholders.

Further advice

If you have any questions about this change, please contact Lisa Allen by email: [email protected]

Declaration

Victoria Atkins MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.