VAT & DIY Housebuilders

A recent First-tier Tribunal decision serves as a useful illustration of a jurisdictional point that catches both taxpayers and their advisers off guard. Where a supplier incorrectly charges VAT, the customer has no statutory route to recover that VAT directly from HMRC.

In Dowey v HMRC, Mr Dowey was undertaking a project under the DIY housebuilders' scheme and purchased a bespoke kitchen. His supplier incorrectly charged VAT on what should have been a zero rated supply. Mr Dowey paid the invoice and included the £4,900 in his wider VAT refund claim to HMRC. HMRC refused, and when Mr Dowey appealed, HMRC applied to have the appeal struck out. The Tribunal agreed and dismissed the case for want of jurisdiction.

The reasoning turns on how the VAT repayment regime is structured. The right to reclaim overpaid VAT from HMRC belongs exclusively to the person who accounted for that VAT - in other words, the supplier. A customer who has borne the cost of incorrectly charged VAT has no direct statutory claim against HMRC, and without such a claim there is no right of appeal to the Tribunal. The Tribunal cannot create a remedy where none exists in legislation, however inequitable the outcome may appear to the taxpayer.

The practical consequence is straightforward. Where a supplier has charged VAT in error, the customer's only route to recovery is through the supplier - by way of a credit note and refund. If the supplier is uncooperative, dissolved, or otherwise unable to assist, the customer may find themselves with no remedy at all. This is a known and unresolved feature of the VAT system, and one that advisers should flag early when errors come to light.

The decision is a useful prompt to review how VAT errors are handled in practice, particularly in construction and property projects where the correct liability of individual supplies is not always straightforward.

VITA advises on VAT disputes, appeals, and liability questions across a wide range of sectors. If you have questions about a VAT error or a dispute with HMRC, please get in touch.