Have I lost my chance to claim 5% VAT on a refurbishment?

[Dan_the_man]

Hi everyone

 

I am currently in the process of renovating my own home. I have been working with an architect and have received building control approval and I am now ready to go out to tender with tender documents in hand. I have owned the house for two years, however for the past 7 months I have not lived in the property. I have now discovered the 2 year empty home 5% VAT scheme and intend to not live in it for a further year 5 months to avail of the 5% VAT scheme.

 

My worry is because I employed a structural engineer around 11 months ago I would not quality for the 5% VAT scheme as work technically started on the physical construction before the property was empty for 2 years. Will HMRC link the structural engineer survey to the physical construction of the extension.

 

From reading this paragraph the only crumb of hope is I would have a period of 28 months before work could start and when I paid the Structural engineer and I am wondering if this would un-link the two events so I could be seen as starting from scratch when I employ the contractor to carry out the works.

 

"If you carry out services either before or after the physical construction of the building takes place, they can only be seen as closely connected if there is a close connection between when they are performed and when the physical construction of the building takes place. Services described in sub-paragraph 3.3.4 may be zero-rated (subject to the conditions in subparagraph 3.1.2) where, for example:  civil engineering services are supplied to a landowner for the purposes of servicing a building plot and it is clear that the construction of a building that qualifies for the zero rate will take place shortly afterwards"

 

What period of time would HMRC see as closely connected?

Edited June 25, 2020 by Dan_the_man

[newhome]

You have to prove that the property has been empty for 2 years immediately before you start the work. The proof needed needed will be documents such as Electoral Roll and Council Tax records, utility bills, notification from the Empty Property Officer in local authorities etc. This will be provided by you to the VAT registered builder who will reduce labour and supply & fit arrangements to 5% VAT. 
 

I doubt that anyone will even connect the SE report to the physical work and there would be nothing to stop anyone from getting surveys before deciding whether to move ahead with a renovation or not anyway. As long as you have solid documentation to prove that the property has been empty and the builder is happy with it I can’t see that a builder will have an issue with charging reduced VAT. It is they who have to show the evidence to HMRC, not you. 

 

 

 

[Dan_the_man]

I am having trouble finding an empty property officer in NI. I emailed the local council and they sent me to the housing executive. They in turn sent me to land and property services. Still waiting to hear back from them. I wish it was easier to find an empty property officer in NI.

 

The only valid evidence I have that I have not lived in the property is my google maps location history and my significantly reduced electricity bills. The past few months its been £3 a month.

[Temp]

Some other thoughts...

 

Most home insurance doesn't cover empty properties, instead you "have" to take out empty property insurance.

 

Council tax is frequently different for empty properties. HMRC might ask about that. It would be unwise to tell the council it was occupied to save money n council tax, but tell HMRC it was empty to reduce VAT.

 

 

Edited June 25, 2020 by Temp

[Temp]

PS I believe you can move in a few days after work starts without loosing the "empty for two years" VAT break.

[joth]

As I understand it this scheme is not administered by the HMRC but by the contractor(s) you use for the work. So long as you can convince them it is unoccupied the day they start, and it has been for 2 years, they can choose to charge the reduced rate. If you have multiple contractors you need to do this with each of them.

There's no mechanism to "claim back" any overpaid VAT. Your tender docs should very clearly require this from the contractors

 

If I'm not totally wrong, it means the SE work was full vat and can't be changed now, but the main contractor work is completely independent and not impacted by that.

 

I'd be more concerned about the lack of hard evidence of it being unoccupied. Showing a builder your Google location history really doesn't prove a thing, I'm afraid. You have to prove *nobody* was living there, not just that you weren't. 

 

 

[joth]

9 hours ago, Temp said:

PS I believe you can move in a few days after work starts without loosing the "empty for two years" VAT break.

So long as you have a single contractor this is possible, but if you are employing the subs direct you need it to still be unoccupied the day each of them starts. 

[newhome]

1 minute ago, joth said:

I'd be more concerned about the lack of hard evidence of it being unoccupied. Showing a builder your Google location history really doesn't prove a thing, I'm afraid. You have to prove *nobody* was living there, not just that you weren't. 

Yes, this. And if HMRC aren’t happy with the evidence supplied the builder will be liable for the additional VAT and may come after the customer for the additional money. 
 

[Dan_the_man]

The only other evidence I have is from an electric pay as you go meter. If you go to the keypad you can display how much electricity usage has been in the past month up to a year. Surely this would be enough evidence as you cant live without using loads of electricity.

 

As a backup I also could get my neighbours to vouch for me that I have not lived in the property and that no one else has lived in there either.

 

Surely I would be better trying to convince an empty property officer that the property was empty and receive the certificate from them and then just hand that over to the contractor?

Edited June 26, 2020 by Dan_the_man

[newhome]

Just now, Dan_the_man said:

Surely this would be enough evidence as you cant live without using loads of electricity.

The evidence I quoted above is the type of evidence HMRC may ask the builder to supply. Utility bills aren’t evidence of anything. You could have PV or a generator for one thing.

 

If you or anyone else is on the electoral roll there then it will be challenging. You can update this here

 

https://www.gov.uk/register-to-vote

 

You should also formally write to the council to say that the property is empty.

 

Ultimately however it will be down to what the builder will accept as evidence and whether HMRC are happy with that evidence.  

[Dan_the_man]

3 hours ago, newhome said:

The evidence I quoted above is the type of evidence HMRC may ask the builder to supply. Utility bills aren’t evidence of anything. You could have PV or a generator for one thing.

 

If you or anyone else is on the electoral roll there then it will be challenging. You can update this here

 

https://www.gov.uk/register-to-vote

 

You should also formally write to the council to say that the property is empty.

 

Ultimately however it will be down to what the builder will accept as evidence and whether HMRC are happy with that evidence.  

 

You could still live in the property even if not on the electoral roll. The same applies if you write to the council. But I guess those are the rules. The annoying thing is I am on the electoral roll. I guess if I change it now I will have to start from scratch for the 2 years of not living at the property even when I have not been living there for the past 7 months. The system is very unfair.

Edited June 26, 2020 by Dan_the_man

[Randomiser]

I think the key notification for the council is the Council Tax department.  There used to be discounts for empty houses, I heard a while back that some councils are now looking to charge a premium on empty houses, so you may end up paying more to not live there.  As mentioned by others if the house is unoccupied for a period of time 30 or 60 days in many cases I think you have to inform your insurer and they will probably want you to take out a specialist empty house policy.  If you have left ypurself on the electoral role and done neither of the two above I am afraid it sounds as though those seven months have been wasted.

 

It does seem a lot of hassle to go through for the VAT saving, do the numbers really make it that worthwhile?

 

In terms of the system being unfair, to be blunt you are 'gaming' the system somewhat.  I am sure the intention of the scheme is to bring genuinely empty housing stock back in to use, not to cause housing to be taken out of the stock of in use homes for two years to get the tax break.

[Dan_the_man]

15 minutes ago, Randomiser said:

I think the key notification for the council is the Council Tax department.  There used to be discounts for empty houses, I heard a while back that some councils are now looking to charge a premium on empty houses, so you may end up paying more to not live there.  As mentioned by others if the house is unoccupied for a period of time 30 or 60 days in many cases I think you have to inform your insurer and they will probably want you to take out a specialist empty house policy.  If you have left ypurself on the electoral role and done neither of the two above I am afraid it sounds as though those seven months have been wasted.

 

It does seem a lot of hassle to go through for the VAT saving, do the numbers really make it that worthwhile?

 

In terms of the system being unfair, to be blunt you are 'gaming' the system somewhat.  I am sure the intention of the scheme is to bring genuinely empty housing stock back in to use, not to cause housing to be taken out of the stock of in use homes for two years to get the tax break.

 

I believe my final renovation cost will be around 140k. So a 15% saving on the majority of that will be massive. I know you only pay 5% VAT on energy saving measures but that would not amount to much in the grand scheme of the build.

 

In Northern Ireland you do not get any council tax discount for an empty home.

 

I suppose you could say I am gaming the system. Another route I had thought of going down is to make the property a HMO and live in it with lodgers for a year. That way I do not have to wait and can still avail of the 5% Vat. I believe I would not be breaking any rules going down this route.

Edited June 26, 2020 by Dan_the_man