Those buying a new home from a builder or developer don’t have to pay VAT on top of the purchase price, because such dwellings are exempt from VAT. It would, therefore, be singularly unfair if those building their own home had to pay this tax. In recognition of this fact, HM Revenue & Customs (HMRC) has put in place certain arrangements for the private individual building their own home, or converting a non-residential building into a home, to reclaim most of the VAT paid out.
The arrangements for reclaiming the VAT are set out in VAT Notice 431, which has the simple title, VAT refunds for ‘do-it-yourself’ builders and converters. You can obtain a copy of the explanatory leaflet from your local Tax Office or download it from hmrc.gov.uk. The scheme is only applicable to those building or converting for their own domestic use and occupation, and is not available for those who develop property as a business, where entirely separate arrangements are in place.
There are very different rules and arrangements covering new build, conversions, renovations and extensions.
Conversions are zero-rated but the rules governing the payment and recovery of VAT are slightly different to those applied to new build. With conversions, labour-only or supply-and-fix contracts attract a reduced VAT rate of 5%.
As with new build, if the self-converter purchases materials on their own account they will have to pay out VAT at the full rate. But then they can recover this, together with the 5% paid out to builders or subcontractors, at the end of the project.
Renovations and Extensions
The bad news is that those renovating, refurbishing or extending an existing dwelling are not able to take advantage of the VAT Notice 431 scheme. They do, therefore, have to pay out VAT at the full rate on any contracts, supply and fix, labour only or materials only, and this is not recoverable.
However, if the dwelling has been left unoccupied for more than ten years, it is treated as a conversion and VAT is recoverable under the scheme. If a dwelling has been empty for more than two years then, although it’s still not eligible under the scheme, there are rules in place that ease the VAT burden. In these cases, a VAT-registered builder or subcontractor can obtain permission from the HMRC to charge a reduced rate of 5% on their work.
A private individual purchasing their own materials would not have the ability to recover any VAT paid out and, therefore, in these circumstances it is often advisable to let the registered contractor purchase the materials and include them in their contract.
Listed buildings do not come within the VAT Notice 431 scheme and there is no mechanism for the recovery of VAT.
In March 2012, HMRC announced the intention to remove the mechanism by which work which involves alteration or extension of a listed building to be zero-rated by a VAT-registered contractor. All work carried out after 1st October 2012 will be charged at the full rate.
Any works involving renovation or refurbishment to a listed building are not eligible for VAT relief and will attract VAT at the full rate. This might seem bizarre when one considers that these works, and not those involved in alteration or extension, are the ones that might serve to preserve the architectural integrity of the building and the reasons behind its original listing — but then again, we are dealing with tax policy.
Advice from a VAT Consultant
VAT Reclaim Specialist Jayne Daniel offers her advice
- VAT charged on hire of scaffolding or hire of plant cannot be reclaimed, so consider using a small local company that has not reached the VAT threshold, so that no VAT will be charged on the hire invoices.
- Expenses overlooked by clients for reclaim mostly seem to be light fittings, curtain poles, fires and fire surrounds, and also bathroom fittings, toilet-roll holders etc. Don’t forget these small items as they can very easily amount to several hundred pounds.
- You may find that any invoices dated after the date of completion are queried by HMRC. These invoices could be disallowed as the expenditure is incurred after completion. But in the real world not everything is finished to perfection before your completion date. To ensure this expenditure is allowed, make sure you have the invoices dated before the completion certificate, even if you haven’t had the work carried out.
- Employ a professional to help with the preparation of your VAT return. A specialist will know what VAT can be claimed, and will help you obtain a refund of any VAT amounts overcharged.
Jayne Daniel is an accountant with over 20 years’ experience dealing with VAT. She’s also an experienced self-builder. She specialises in helping self-builders, converters and certain renovators with their VAT reclaim, and her fee is payable only once HMRC has issued the refund. (0161 763 5304; vatrepayments.com).
There are a number of items of VAT that cannot be recovered under the scheme.
- VAT paid out for professional services such as architects, surveyors, engineers and the like.
- VAT paid out on the hire of plant or tools including scaffolding and skip hire.
- You cannot reclaim the VAT paid out on fuel or transport costs.
- You cannot reclaim any VAT paid out on carpets or curtains but you can reclaim the VAT paid out on ‘fixed flooring covering’ such as floor tiles.
- Fitted wardrobes are excluded unless they are built in as part of the structure of the building.
- You cannot reclaim the VAT paid out for kitchen ‘white goods’ such as cookers, dishwashers, refrigerators, freezers and washing machines, even if they are built in. However, you can claim back the VAT on the kitchen units which are built in as part of the fabric of the room.
- Doorbells, electrically operated door or gate equipment, aerials and satellite dishes must also be excluded from the claim.
- Outbuildings, other than garages, are similarly excluded. Strictly speaking a workshop or store at the rear of a garage should be separated out from the reclaim. So too with swimming pools unless they are part of the structure and integral to the house.