Farquharson v Revenue & Customs [2019]: Defining 'Completion' for VAT Refunds under the DIY House Builders Scheme

1. Introduction

Farquharson v Revenue & Customs ([2019] UKFTT 425 (TC)) is a pivotal case adjudicated by the First-tier Tribunal (Tax) that addresses the interpretation of the term "completion" within the context of claiming a Value Added Tax (VAT) refund under the DIY House Builders Scheme. The appellant, Mr. Stuart Farquharson, sought to overturn HM Revenue and Customs' (HMRC) refusal of his VAT refund claim by contesting the determination of the completion date, which HMRC asserted rendered his claim time-barred.

2. Summary of the Judgment

The core issue in this appeal was whether Mr. Farquharson's VAT refund claim was submitted within the statutory three-month timeframe stipulated under reg 201 of the Value Added Tax Regulations 1995. HMRC had denied the claim on the grounds that it was submitted more than three months post-completion, attributing completion to either the date of occupancy (2008) or the date of the last invoice (2016). Mr. Farquharson contended that completion should be linked to the issuance of the Certificate of Completion in May 2017. The Tribunal ultimately ruled in favor of Mr. Farquharson, establishing that completion should be defined by the issuance of the Certificate of Completion or equivalent documentation, thereby allowing his claim to proceed.

3. Analysis

3.1 Precedents Cited

The judgment references B Bowley v HMRC [2015] UKFTT 683 (TC), a previous case where the Tribunal allowed a VAT refund claim by recognizing the complexity in determining the completion date for construction projects occurring over extended periods with intermittent work phases. In Bowley, the completion was associated with the end of substantial purchases, aligning with the practical aspects of construction timelines.

While Bowley provided a context for understanding completion over sporadic construction periods, Farquharson distinguished his case by emphasizing the statutory definition tied explicitly to the Certificate of Completion, rather than financial transactions or occupation dates.

3.2 Legal Reasoning

The Tribunal's legal reasoning centered on statutory interpretation of reg 201 of the Value Added Tax Regulations 1995. The key points include:

Plain Meaning: The Tribunal adhered to the plain meaning rule, interpreting "completion" as the issuance of a Certificate of Completion, as specified in reg 201(b)(i).
Supremacy of Documentation: Emphasized that completion is validated through documentation—not through circumstantial evidence like occupation or invoice dates.
Purpose of the DIY Scheme: Highlighted that the scheme aims to align DIY house builders with VAT-registered developers by providing a clear endpoint for VAT refund claims, thereby ensuring fiscal neutrality.
Rejection of HMRC's Interpretation: Dismissed HMRC's alternative definitions, stating they lacked statutory backing and introduced unwarranted ambiguity.

The Tribunal also analyzed the purpose behind the DIY Scheme, reinforcing that it is designed to facilitate a singular and clear VAT refund claim upon the completion of construction, thereby avoiding multiple claims and ensuring administrative efficiency.

3.3 Impact

This judgment has significant implications for VAT refund claims under the DIY House Builders Scheme:

Clarification of 'Completion': Sets a clear precedent that completion is tied to the issuance of a Certificate of Completion or equivalent documentation, not to occupation or financial milestones.
Guidance for DIY Builders: Provides clarity for DIY house builders on when to submit VAT refund claims, reducing ambiguity and potential disputes with HMRC.
Administrative Efficiency: Encourages a standardized approach to determining completion, thereby streamlining the VAT refund process.
Potential for Future Appeals: Other appellants in similar situations can reference this decision to argue for documentation-based completion dates.

Moreover, this ruling reinforces the importance of statutory language over internal HMRC guidelines, emphasizing that tribunals prioritize legislative text in their interpretations.

4. Complex Concepts Simplified

4.1 VAT Refunds under Section 35 VATA

Section 35 of the Value Added Tax Act 1994 (VATA) allows individuals who build their own homes (DIY housebuilders) to claim refunds on VAT incurred during construction. This aims to neutralize VAT costs, making DIY building financially comparable to purchasing a VAT-registered developer's property.

4.2 DIY House Builders Scheme

A VAT scheme designed specifically for individuals constructing their own homes. It allows for the refund of VAT paid on construction costs, provided claims meet specific regulatory requirements within stipulated timeframes.

4.3 Certificate of Completion

An official document issued by a local authority indicating that construction work has met all regulatory standards and is deemed complete. In the context of the DIY Scheme, it serves as proof of completion necessary for initiating a VAT refund claim.

4.4 Statutory Interpretation

The process by which courts interpret and apply legislation. In this case, the Tribunal analyzed the statutory language to determine the precise meaning of "completion" under the VAT regulations.

5. Conclusion

The Farquharson v Revenue & Customs [2019] judgment serves as a landmark decision in the realm of tax law, particularly concerning VAT refunds under the DIY House Builders Scheme. By affirming that "completion" is intrinsically linked to the issuance of a Certificate of Completion or equivalent documentation, the Tribunal has provided much-needed clarity to the process of VAT refund claims. This interpretation not only aids DIY housebuilders in navigating the complexities of tax legislation but also ensures that HMRC's administrative processes align with clear statutory directives, promoting fairness and legal certainty.

For legal practitioners and individuals engaging in self-build projects, this case underscores the paramount importance of adhering to statutory requirements and the pivotal role of documentation in tax-related claims. As the housing market continues to encourage self-building endeavors, such jurisprudence will undeniably shape the landscape of VAT regulation and compliance.