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VAT Concessions for Conversions Explained

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(Image credit: getty images)

There are several VAT concessions available to converters — but it’s up to you to understand the rules if you want to avoid paying more than necessary.

There are no figures for how much Value Added Tax (VAT) is overpaid by people carrying out conversions (and indeed, renovations and new builds) in the UK. Undoubtedly, it is in the millions of pounds. HMRC is unlikely to have much sympathy though, as this figure is almost certainly dwarfed by the amount of VAT that it fails to collect from the ‘black economy’.

It’s surprising how few building contractors, subcontractors, architectural designers, accountants and even HMRC staff are aware of how to apply the correct rate of VAT on conversion work.

So if you want to avoid paying too much tax, unless you are willing to employ a specialist VAT adviser, don’t rely on anyone else but yourself.

It’s down to you to find out the correct rate of VAT that applies to your conversion project, and to do so before you part with any money. Pay too much tax and HMRC will not refund a penny if it was wrongly collected in the first place.

It is also down to you to recover VAT overpayments yourself, and that isn’t always easy, especially if the builder or supplier has ceased trading.

VAT Reclaim Rules for Conversion Projects

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The DIY Housebuilders Scheme allows you to reclaim some of the VAT that you have paid out for your project if you are converting a non-residential building into a new dwelling.

This applies to, for example:

  • barns
  • old churches
  • business premises
  • schools
  • warehouses

Even if you buy the space as a serviced shell, you can reclaim the VAT paid on eligible works to complete the conversion.

These works could include:

  • heating and plumbing
  • bathrooms
  • kitchen
  • decorating

Converting a Mixed-use Building

Where any part of a building being converted has been used as a dwelling before and your conversion results in a single dwelling, you cannot recover the VAT on the building work.

For example, if you converted a pub with accommodation above, or a live/work unit, you could not recover VAT on your project.

This is because the ultimate sale will be VAT exempt as an existing dwelling, rather than zero rated as a new dwelling.

However, the reduced rate of VAT applies (using VAT-registered contractors) when:

  • a building has been empty for more than two years, or
  • if there is a change in the net number of dwelling units.

Where there is a change in the net number of units, VAT can only be recovered on the new dwellings and not on those parts of the building that were already in residential use.

Next Steps

Get hold of a copy of the relevant form and its accompanying notes from (Notice VAT431C for conversions).

(MOREHow to reclaim VAT on your building project)

Michael is HB&R’s Head of Content and Product Development. Michael is also, Chair of the National Custom and Self Build Association (NaCSBA), presenter of multiple property TV shows and author of Renovating for Profit (Ebury). Michael is a regular in the seminar theatres and Advice Centre at the Homebuilding & Renovating Show.