Farquharson v Revenue & Customs (VALUE ADDED TAX - DIY House Builders Scheme)

Factual and Procedural Background

The Appellant undertook a DIY housebuilding project starting with planning permission granted in 2007 for a two-story house and garage. Construction began shortly thereafter, with initial occupancy of the garage from 2008 while the main house remained incomplete. Over the years, intermittent construction continued as funds allowed. In May 2016, due to unsustainable commuting costs, the Appellant and family decided to put the incomplete property on the market. After nearly a year without a sale, a Certificate of Completion was obtained from the local authority on 26 May 2017 to facilitate the sale, which completed on 1 July 2017.

On 7 August 2017, the Appellant submitted a VAT refund claim under the DIY Housebuilders Scheme for input VAT incurred during construction. HMRC rejected the claim on the basis that it was submitted more than three months after the building's completion, relying on an earlier date of completion than the Certificate of Completion. Following a review and an unsuccessful alternative dispute resolution process, the Appellant appealed to the First-tier Tribunal.

Legal Issues Presented

1. Whether the Appellant’s VAT refund claim under the DIY Housebuilders Scheme was made within the statutory time limit of three months after completion of the building as required by regulation 201 of the Value Added Tax Regulations 1995.
2. The proper interpretation of the term "completion" for the purposes of the time limit under regulation 201, specifically whether completion is determined by the issue of a certificate of completion or by alternative criteria such as date of occupation or date of last invoice.

Arguments of the Parties

Appellant's Arguments

• The Appellant complied with all known requirements on the claim form, including submitting a Certificate of Completion and making the claim within three months of that certificate.
• The Appellant challenged HMRC’s reliance on an internal document not referenced in the claim form or publicly available, deeming it unreasonable to expect lay knowledge of it.
• Detailed approved plans were provided, contrary to HMRC’s assertion that they were not.
• The delay in applying for the Certificate of Completion was due to personal circumstances, including redundancy and relocation, and the desire to wait for a formal offer before applying.
• The house was not fully complete or a fully functioning dwelling at the time of the certificate or sale, with significant unfinished rooms and estimated costs to complete.
• Only one claim is permitted under the scheme, so the Appellant had no choice but to make a single claim.

Respondents' Arguments (HMRC)

• The statutory three-month time limit for making a claim is absolute and admits no discretion.
• Completion is not necessarily determined by the issue of a certificate of completion but by when the building has the facilities required to function as a dwelling and is built in line with planning permission.
• HMRC contended the building was completed either on 23 December 2008, when the dwelling was first occupied, or at the latest on 2 June 2016, based on the last relevant invoices and the date when the property was advertised for sale.
• The sale of the property was a major factor in obtaining the Certificate of Completion, which was issued after completion for sale purposes rather than as a true marker of completion.
• Photographic evidence and invoices supported HMRC’s view that the building was a fully functioning dwelling well before the certificate was issued.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal focused on the statutory interpretation of regulation 201 of the 1995 VAT Regulations governing the DIY Housebuilders Scheme. The key issue was the meaning of "completion" for the purposes of the three-month time limit for claiming a VAT refund.

The court held that "completion" must be given its plain meaning as the date evidenced by a certificate of completion issued by the local authority or, failing that, alternative documentary evidence satisfactory to HMRC as specified in the regulations. This interpretation is supported by the statutory wording which prioritizes the certificate of completion as the clear and unambiguous marker of completion, enabling certainty and administrative efficiency in the refund scheme.

The Tribunal rejected HMRC’s alternative interpretations that completion could be the date of occupation or the date of the last invoice, noting these are not provided for in the statute and introduce ambiguity and uncertainty. The court emphasized that the statute requires a bright-line completion date to avoid arbitrary and inconsistent application.

Further, the Tribunal considered the purpose of the DIY Scheme, which is to put DIY house builders in a similar VAT position to registered developers by allowing a single VAT refund claim at completion. The timing of completion is in the control of the house builder, who triggers completion by applying for the certificate or acceptable alternative documentation.

The Tribunal found that in this case, the Certificate of Completion was issued before the house was fully complete, to enable the sale. The Tribunal accepted the Appellant’s evidence that significant works remained unfinished at the time of the certificate and sale.

The Tribunal also noted inconsistencies in HMRC’s position regarding whether certain invoices related to pre- or post-completion work, undermining the reliability of HMRC’s alternative completion dates.

Holding and Implications

The Tribunal ALLOWED the appeal, holding that the Appellant’s VAT refund claim was made within the statutory three-month time limit measured from the date of the Certificate of Completion issued on 26 May 2017.

The direct effect is that the Appellant’s claim is valid and not time-barred. No new precedent was established beyond the application of existing statutory interpretation principles and reaffirmation of the primacy of the completion certificate as the defining completion event under the DIY Scheme.