DIY Housebuilder scheme: why TJ Dowey’s VAT claim was refused
For those building a new dwelling and seeking to claim a VAT refund via the DIY Housebuilder Scheme, the recent case of Thomas Joseph Dowey v HMRC (TJ Dowey) has highlighted an issue to be aware of.
The scheme allows VAT to be claimed back in respect of eligible costs e.g. eligible goods incorporated into the fabric of the dwelling. It does not allow the claiming back of VAT that was incorrectly charged.
In TJ Dowey, the contractor incorrectly charged VAT in respect of a bespoke kitchen and island counter supplied during construction. The contractor should have zero-rated the supply.
HMRC refused to pay the incorrectly charged VAT as it was not TJ Dowey’s input VAT. Since it was not input VAT (but overpaid output VAT), TJ Dowey appealed to the First-tier Tribunal (FTT) with a claim for the overpaid output VAT.
The FTT judged that the recipient, in this case TJ Dowey, has no claim under S.80(1) where the supplier has incorrectly charged VAT. Only the supplier can claim such overpaid VAT from HMRC.
What this means for DIY housebuilders
It is crucial for DIY housebuilders to analyse their invoices carefully as soon as possible when they receive them and challenge any VAT charged in error. Submitting a claim to HMRC and waiting for HMRC’s refusal of an input VAT claim presents multiple risks:
- On incorrect VAT claims, HMRC may levy a penalty on the grounds of ‘failure to take reasonable care’
- If the supplier has gone out of business by the time you receive HMRC’s decision, it will often be too late to request a refund
How BKL can help
Our VAT specialists can help you to understand the VAT implications of your property and construction project, including new builds, and to submit VAT refund claims to HMRC.
For more information about how we can help please speak to your regualr BKL contact or Luigi using the form below.
Contact Luigi
Frequently asked questions: DIY Housebuilder Scheme and VAT refunds
What is the DIY Housebuilder Scheme and what does it allow you to claim?
The DIY Housebuilder Scheme allows individuals to reclaim VAT on certain building materials used to construct or convert their own home. It applies where you are not VAT registered and cannot recover VAT through a business.
Typically, it covers goods incorporated into the building (like bricks, windows, or sanitaryware), but not most services.
Claims must be submitted to HMRC after the project is completed, with valid invoices and supporting documentation.
Can you reclaim VAT that was charged incorrectly on building work or materials?
No. Incorrectly charged VAT cannot be recovered through the DIY Housebuilder Scheme. As confirmed in the Thomas Joseph Dowey v HMRC case in 2026, only the supplier (not the customer) can reclaim VAT that was charged in error.
If a contractor should have applied zero rating but didn’t, HMRC will reject any attempt to recover that VAT through the scheme. Instead, you must go back to the supplier to correct the invoice and refund the VAT.
What should you do if a builder or supplier charges VAT incorrectly?
You should challenge the invoice immediately and ask the supplier to correct it. Time is critical: once paid and submitted in a claim, it may be difficult to recover the VAT later. Ask for a revised invoice showing the correct VAT treatment (for example, zero-rating for qualifying construction services). By keeping clear records and addressing issues early, you will significantly reduce the risk of losing the VAT permanently.
What happens if you include incorrect VAT in a DIY Housebuilder Scheme claim?
HMRC are likely to reject that part of your claim and may impose penalties. Claims that include VAT which should not have been charged are treated as incorrect, and HMRC often consider such errors to be careless. This can lead to financial penalties as well as delays. It also creates practical risk: if the supplier later becomes insolvent, you may have no way to recover the VAT at all.
Why do HMRC refuse claims for VAT charged in error?
HMRC refuse these claims because, legally, the VAT belongs to the supplier, not the customer. Under VAT rules (including section 80 of the VAT Act 1994), only the party that accounted for the VAT to HMRC can reclaim it. Even if you ultimately bore the cost, the law does not allow HMRC to repay it directly to you under the DIY Housebuilder Scheme.
Are all construction costs eligible for VAT recovery under the scheme?
No: only specific types of costs qualify, and the rules are strict.
Generally, the scheme covers goods incorporated into the building but excludes professional fees (such as architects), most labour costs, and items not integral to the structure.
In addition, the VAT treatment must have been correct at the point of supply. Understanding eligibility in advance helps avoid rejected claims and unexpected costs.
When should you review VAT on invoices during a build project?
You should review VAT on every invoice as soon as you receive it, not at the end of the project. Early review gives you the best chance to correct errors while the supplier is still engaged and able to issue amended invoices. Leaving checks until the final claim stage increases the risk of rejection, penalties, and practical difficulties recovering overpaid VAT.
Is it a common misconception that you can reclaim all VAT on a self-build?
Yes, a common misunderstanding is that all VAT on a self-build can be reclaimed. In reality, recovery is limited to eligible goods and only where the VAT has been charged correctly. VAT charged incorrectly, or costs outside the scope of the scheme, are not recoverable.
This is a key area where many claims go wrong, particularly when relying solely on contractor invoices without checking the VAT treatment.
What risks arise if a supplier goes out of business before VAT errors are corrected?
If a supplier becomes insolvent before correcting an incorrect VAT charge, you may not be able to recover the money at all. Since only the supplier can reclaim overpaid VAT from HMRC, your ability to recover it depends on them issuing a refund. This creates a real financial risk for housebuilders who do not address VAT errors promptly.
How can professional advice help with DIY Housebuilder VAT claims?
Professional VAT advice can help you identify eligibility, review invoices and avoid costly mistakes early in the process. This includes checking whether supplies should be zero-rated, ensuring documentation meets HMRC requirements, and reducing the risk of rejected claims or penalties. For complex builds or high-value projects, this can provide significant financial protection and smoother interaction with HMRC.
