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Conversion, Renovation & VAT

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

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

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).

What's Excluded?

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.

32 Comments

could you tell me if i am able to reclaim vat on NEW Post Office Fixtures & Fittings DURING A REFUBISHMENT OF MY SHOP AND UPGRADEING P O FACILLITIES
I've carried out demolition on my garage and am paying a contractor to supply and fix a new larger garage with new bedroom and ensuite above that will be connected to our existing dwelling. Can you tell me if I have any chance of claiming % of VAT back. Thanks
Thanks Sam for yur response. I have now been informed that i should be able to claim 15% vat back because it should only have been charged at 5% and that i should claim it at the time of purchase not at the end of the job. Apparently their is a 'Statutory Declaration' form which i should be able to obtain from the IR but at the moment i am unable to find it. Sam, are you aware of this? If so could you point me in the right direction? Thanks Rob
Hi I am currently doing a development project where we are converting an old industrial unit into 9 residential flats. Am I eligible for the flat rate VAT of 5%, if so should the contractor charge us the flat rate or do we have to make the claim?? Also does it make a difference if the contractor is vat registerd or not?? thanks..
I purchased a grade II listed dwelling which had been empty for several years and required considerable repair including the relocation and fitting a new bathroon, gutting and fitting new kitchen plus a number of other items all of which required planning permission and and conservation authority. AT the time of purchase i was advised that all the alterations would be zero vat rated. I am in the construction industry myself and have carried out most of the alterations, i have now come to claim my vat back only to be told by an accountant that i cannot claim because i have carried out the work and not employed another to do so. In addition i am also advised that i cannot claim vat on the materials i have purchased for the refurb. Can anyone help with advice? Thanks Rob
Hi I am currently doing a development project whereby all the exterior walls bar one will come down and get replaced. None of the original interior walls will remain Then planning permission is classing it as a rear, side and front extention and not as a demolition/newbuild. What are VAT rules on claiming a reduced rate?? Look forward to responsenghahe
You say: "Listed buildings do not come within the VAT Notice 719 scheme and there is no mechanism for the recovery of VAT." Where in VAT Notice 719 is this mentioned? I just spoke with HMRC's helpline who confirmed that if I am buying certain goods and services in order to convert a Listed Building into residential accommodation then I can reclaim any VAT charged. Who is right - this article or HMRC?
I've heard you can reclaim VAT on a 'self build' extension. Any advice please?
Where do I send my VAT invoices to? I live in Gloucestershire and I have filled my forms in but I have no address. Can anyone help please.
Does anybody know if you can claim the VAT back on demolition prior to a new build?
I am dealing with a client who is converting a grade 2 listed building into a dwelling. His accountat tells him that no concesion is available and that this is due to the fact that the planning permission only allows for the dwelling to be used on a holiday let basis. Does this sound rite?? Could you please advise. Thanks Stefan
We are interested in a barn that has planning for a conversion to part living and part studio/workshop. It is listed as within the curtilage of a listed property. Does anyone know whether the VAT would be reclaimable on this conversion. The vendor is a large company and is suggesting that the purchase price is subject to VAT at the current rate of 20%. A little unusual I know, but would this be reclaimable as well? Look forward to any comments. CR
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I carried out labour only work on a barn conversion from march 09 to july 09. The customer said charge vat at the current rate (15%) as the lower rate was not allowed for labour. Recently he has sent a letter saying it should be 5% and wants the difference back. We paid the vat to the vat as usual and this is now nearly a year so how can we sort this out - are we legally bound to repay as this was his mistake not ours? Since then we have de registered for vat so it makes it even more difficult. I look forward to your advice
I have just purchased a new biuld property from a developer, to which I have had fitted bedroom furniture installed. Can I reclaim the VAT that I have paid for this as I have heard it should have been exempt. Your assistance is greatly appreciated
Not only does Notice 719 not offer recovery of VAT on listed building, the HMRC website states that that this notice is obsolete and has now been withdrawn. Their Brief 45/09 brought into effect new claim forms and associated notes on 15 August 2009. However do not dispare! Notice 708 Section 9 allows zero-rating of the supply of services on alterations to a listed building. Look at the small print for the qualifiations and definitions. If you, as a self builder, are buying materials for the conversion of a building to a dwelling for your own use then the DIY refund scheme is likely to entitle you to reclaim the VAT on those purchases. Edward Rubie Tel.01622 880404 www.rubie.co.uk
Hi, My client just bought a listed building and refurbishing at the moment, however, he company isn't register VAT and all works has been carried out by VAT registered supplies. How can he reclaim the VAT? Thanks.
Hiya Rob, The section entitled 'Renovations & Refurbishments' in the article above explains, I think, the situation. Unless your property had been empty for 10 years or more, in which case your renovation could be classed as a conversion, then you cannot claim back the VAT. Although you could have got a reduced rate on the VAT as your property was empty for more than two years, it seems that this only applies if you use a VAT registered builder to do the work and buy the materials. As you did the work and bought the materials yourself, I don't think you can claim a reduced rate. Best of luck and kind regards, Sam Joy (Online Editor)
I am not surprised at your accountants advice. My understanding of the VAT situation is that VAT is only reclaimable on listed buildings that are being extended or are having 'new works' carried out, therefore a 'replacement' kitchen or bathroom and any associated plumbing and electrics would be classed as vated at the current standard rate even though you may believe them to be 'new works'. The key to it all is really extending as opposed to refurb. VAT Notice 708 gives examples of typical works and how they are considered and if you can get through to your tax office they can advise. Best of luck. Sally
Hi Rob, I'm sorry but I'm not aware of this form, however that is not to say it doesn't exist as my knowledge on the subject is limited. You're probably best off contacting IR directly. Kind regards, Sam Joy (Online Editor)

I am a private individual, not a builder or trading company, restoring & converting a Grade 2 Listed building into 2 cottages. Am I able to claim back VAT incurred on spend on building materials, skip hire, fixtures & fittings, services, etc.?
Any advice gratefully received
Thanks

Hi Richard,

I'm afraid you cannot reclaim VAT on a listed building. The listed building section in the article explains this in more detail.

Kind regards,
Sam Joy (Online Editor)

I have purchased a property for renovation that has been empty for over 10 years.
To reclaim VAT - is it on materials I purchase directly? or does this have to be through a contractor?
Thanks

Hi Bernard,

As the property has been empty for over ten years it counts as a conversion. The rules for conversions are as follows:

"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."

Hope this explains it.

Kind regards,
Sam Joy (Online Editor)

I'm in the process of converting my garage into a play room/ 4th bedroom. Will I be able to claim VAT back on this.

Hi David,

I'm afraid you cannot claim VAT back in this situation.

Kind regards,
Sam Joy (Online Editor)

We are creating a new house from three buildings:

1. An old Garage that's being knocked down and replaced with a new build that links to...
2. A Coach House that links to...
3. A Forge

All three buildings will become one 3 bedroom, 2 bathroom dwelling.

Now here's the tricky one...

We think an old guy lived in (though barely habitable) the ground floor room of the Coach House within the last 10 years. He had no access to the room above. How does this work with the 10 year rule for VAT claims? Does the ground floor area not qualify for this? What about upstairs?

Also, does the replacement of the Garage count as a new build and should we not being charge by the builder for this?

It's all very confusing!

Hi,

A few years ago we renovated our current house which had been unoccupied for more than 2 years. We used a couple of contractors who charged VAT at the current rate at the time and not the recuced 5% rate. Is it possible to retrospectively claim the difference in VAT back from HMRC?

Thanks

Hi Sam,

I am a US citizen and my wife and I are in the process of buying a former school house with an attached teacher residence. While the residence has been occupied for the past six years, the school house has not be used for over thirty years. Given this scenario, would our renovations of the school house afford us any reduction in VAT?

Thanks,

Mark

There should be no VAT on residentail reburbishment, its absolutley crazy you have to pay 20%.// or a reduced rate of 5% should apply ONLY. We are an over taxed society as it stands, it just seems unfair.
We pay stamp duty too, Inheritance tax on property. Absurd and unjust!

Could I seek clarification, as I have almost completed a house renovation, and on the original estimate was advised by the builder he was not VAT registered. Now, with just the final payment and invoice due( I have been had some difficulty in agreeing the correct sum for this) he suddenly advises that VAT will apply. I am a private individual and cannot reclaim this in any way as it is my home,but can you advise wether my original estimate can be overridden in this way? Thks

My client bought an existing building 4 years ago, demolished it and built new flats on the site. His company isn't Vat registered but all materials and work have been carried out by vat registered traders. Can he backdate a Vat registration and reclaim the output tax he has suffered.