Note : 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.
Consider the use of an inclusive design & build package
VAT paid out on professional fees e.g. an architect, is not eligible for relief unless it is supplied as part of a design and build contract. Consider whether such a contract might be more appropriate or, if you are using a package deal company, get them to write off the costs of any professional fees within the overall package. The cost of design or any other professional services should not be identified and itemised as a cost on any invoices.
Get scaffolding contractors to zero-rate their labour
Hire and erect scaffolding contracts, as well as other things like crane hire agreements, contain the two elements of supply and labour. VAT is payable on hire charges at the standard rate. If a single invoice is paid for the whole of their services, the total cost will be subject to VAT at the standard rate. However, if the invoice is itemised, the labour element is eligible for relief. On a conversion project, VAT will be charged at the standard rate on the total invoice but the VAT on the labour element, if itemised separately, can be reclaimed on completion.
Keep all paperwork and receipts
If you do not have proof of VAT paid, you cannot make a reclaim, so be sure to keep all receipts carefully. Make sure that they are proper invoices and receipts and not just delivery notes or pro-formas. VAT bills and receipts should show a VAT registration number (usually nine digits, sometimes shown with a GB prefix), what you have bought (not just goods), the date of purchase, and normally a serial number except for on small cash receipts. The bill must make it clear whether VAT has been charged. VAT paid in error cannot be reclaimed under any circumstances.
Plant to an agreed scheme
Turf laid adjacent to your home is eligible for relief, providing you lay it before completion of the project. A recent VAT Tribunal ruling has held that planting can also be given relief if a planting scheme is imposed as a Condition by the planning authorities. The VAT paid on planting can be reclaimed under Notice 431 but Customs & Excise might well require that you demonstrate that the planting has been carried out in furtherance of the Condition and that the local authority have confirmed that the work is acceptable and in accordance with it.
Go for storage that is part of the building fabric
If you’re thinking of buying furniture for your new home, before you go rushing out to buy wardrobes, consider having storage built in. Fitted furniture is not eligible for VAT relief but storage, including wardrobes, are eligible if designed into the fabric of the building, e.g. it encloses a space bordered by the walls, ceiling and floor (the third wall can be a stub wall). On opening the wardrobe, the painted wall must be visible and there should be no more than a single shelf and a rail for hanging clothes. You can of course adapt to suit once the building is complete.
Go for free white goods with your kitchen
White goods such as ovens, hobs, integral dishwashers and fridges are not eligible for VAT relief even if they are permanently built in. However, offers on kitchen units that include free white goods can leave an unofficial loophole in the collection system. Technically, the value of the white goods should be itemised on the invoice and the VAT deducted from any reclaim, as they are not really free, but this depends on the value being detailed on the paperwork, so in theory you can save the VAT.
Choose your built in oven wisely
The VAT Notice 431 states that kitchen stoves are eligible for VAT relief but not gas and electric cookers unless they are plumbed in to provide hot water. An oil fired range cooker, like an Aga, is considered to be a fixture and is, therefore, eligible. A gas or electric range, however, is standard rated unless plumbed in to either the heating or hot water system. In practise, many people reclaim the VAT on ranges and range style cookers whether plumbed in or not, although there is no guarantee that this will go unnoticed. Oddly, cooker hoods are always eligible for VAT as part of a ventilation system.
Use non VAT registered labour for renovations
VAT is normally charged at the standard rate on all works to existing dwellings. However, there are many local tradesmen who do not have to charge VAT on their work because their annual turnover is below the £52,000 threshold. This could result in a significant saving but caution must be taken with regards to price and quality of workmanship. There is also a black market in the construction industry where contractors, not all of them cowboys, are prepared to work partly, or entirely, for cash without charging any VAT on their labour. Although the contractors are breaking the law by failing to collect VAT, it is not illegal to employ them. Be aware, though, that payments made without paperwork will restrict your chances of legal redress should things go wrong.
Recover any VAT paid for purchases made in the EU
If VAT relief is available on your project then it is recoverable at the rate paid for any materials purchased within the EU. Most continental builders merchants display prices inclusive of VAT and it is important that you retain the invoice and that it states the rate at which the VAT has been paid. You must also convert the invoice and VAT paid to sterling at the exchange rate current at the time of acquisition, so note this at the time.
Concentrate on VAT recoverable materials
Prioritise your expenditure on those building materials which are eligible for VAT relief. VAT is standard rated at 20% on carpets and door bells but alternatives such as ceramic, stone or timber flooring and door knockers (a list is published in VAT Notice 708) are all eligible for relief. Go for quality and luxury if you can, as the VAT rules do not distinguish between the finest bathroom suite and the economy model. Utility room furniture and fitted kitchen furniture are eligible for VAT relief.
Reclaim VAT on renovating a derelict dwelling
Since July 21 1994 new dwellings created by the conversion of non residential buildings have been eligible for VAT relief. Fewer people are aware that the renovation/conversion of former dwellings is also eligible for relief, providing the property has not been occupied for a period of 10 years. If a house has remained unoccupied for 10 years or more it is classed as derelict, and derelict properties qualify for VAT relief in the same way as any new build home. If the property has been unoccupied for a period of 2-10 years, it qualifies for a reduced rate of 5%.
Don’t defer zero-rated work such as hard landscaping
Make sure that you undertake all qualifying work before the main dwelling is completed. Labour and materials for hard landscaping for the driveway, main paths to and from your new dwelling, retaining walls and patios are all eligible for VAT relief, providing it is completed during the construction of the dwelling so don’t leave this work until it is too late.
Consider using the services of a VAT specialist
A specialist VAT consultant or an accountant who specialises in the field of VAT recovery will be able to handle your VAT reclaim on your behalf. More often than not, their fees, of a few hundred pounds, will be more than matched by the extra VAT saved or recovered. If you use a specialist they might be able to argue the case with local officers more effectively than you thus reclaiming additional VAT. If nothing else, it will save you completing the forms yourself – a complicated and time consuming process!
Use a VAT registered builder for approved alterations to listed buildings
VAT relief on approved alterations to listed buildings is given by way of allowing the builder to zero-rate their services and any materials they use. You cannot claim relief on materials you buy yourself, whether for DIY use or for use by others. For major alteration works, it is, therefore, essential to ensure that the builder you employ is VAT registered and to discuss the VAT implications with them – some builders refuse to zero-rate work without express authorisation from the Customs & Excise. The only alternative is to set up a firm and register for VAT yourself.
Reclaim VAT on materials purchased outside the EU
If you import materials from non EU countries for use in your building project, you will have to pay VAT at the standard rate, currently 20%, at the port of entry. This is recoverable under the normal Notice 431 scheme as long as you have proof of purchase together with proof that the materials imported were used in your project.
Part Completed Buildings/Small Claims
The completion of a part finished property, e.g. one purchased after another self-builder has given up, or after a developer has gone bankrupt, is also eligible for VAT relief. It is also possible to make a claim under Notice 431 for any materials that you have purchased yourself, even if all of the labour and the rest of the materials for your new home are being supplied and zero-rated by a VAT registered contractor, including a developer/housebuilder. Work on new dwellings to buildings which have been sold as a shell, e.g. warehouse/loft apartments, are also eligible for relief.
Join any outbuildings to the main house
The only detached building eligible for relief is a garage constructed or converted at the same time as the new house. According to your circumstances, you should aim to build or, in the case of conversions, join any other outbuildings to the main house (subject to planning permission). Conservatories are eligible, providing they are indicated in the planning permission and built before completion. If you have any future plans for expansion, see if the work can be brought forward by adding them to your existing consent. Be aware that any breach of planning permission technically forfeits VAT relief.
Consider new build instead of renovation
In some cases, where you are considering the extensive renovation of an existing residential building, it may be more cost effective to demolish and re-build from scratch. The work will then be eligible for VAT relief as a new dwelling, potentially saving £1,000s.
Reclaim VAT on conversions
On a conversion project, although labour and most materials are eligible for VAT relief, VAT registered builders have to charge the standard rate. It is then up to you to claim VAT back on completion of the project under Notice 431. If you are using unregistered labour, they will not charge any VAT on their services but in order to ensure you can reclaim VAT paid on any materials they supply, ensure that they are invoiced to you by the supplier, or are unnamed cash sale invoices. If the invoice is in the contractors name, a declaration from them that the materials have been used on your project may suffice. However, this is at the discretion of the VAT office.
What is zero-rating?
Most building materials and services involved in the construction of a new dwelling are eligible for VAT relief. In the case of new build most services are free of VAT and any materials supplied and fixed by a VAT registered contractor can be zero-rated i.e. they will not charge you any tax. Any materials which you purchase yourself which are eligible for zero-rating will be subject to VAT at the standard-rate (currently 20%*) at the point of sale. However, you can reclaim the tax you pay on completion of the project (See Customs & Excise Notice 431 VAT – refunds for do-it-yourself builders and converters, available from hmrc.co.uk). Conversions, unless sold as a completed project, in which instance the entire supply can be zero-rated are subject to VAT at the standard rate but tax on eligible materials and services, can be reclaimed on completion under Notice 431.
For further information on Notice 431 visit hmrc.co.uk
*Article updated January 2013