If you’re planning to build yourself or your family a new home, or convert an existing building into a residential property, HMRC may well deem your project exempt from new-build VAT under its DIY Housebuilders Scheme.
When you purchase a house on the property market, you don’t pay VAT; this same principle is applied by HMRC to (some) self-builds and conversions. As a DIY housebuilder, you may be exempt from paying any VAT on labour costs, and can typically reclaim VAT on conversion and materials costs following completion of the project.
We’ll break down for you the legal nuances of HMRC’s two self-build VAT reclaim policies, detailing what’s covered and what’s not, as well as providing clear instructions on how to reclaim value-added tax on your build.
What kind of builds are VAT exempt?
Not all new-builds are VAT zero-rated, though the list of those which are may still surprise you. Before undertaking any new residential building project, it is well worth reading-up on HMRC policy to determine which elements of your build you can reclaim VAT on. Doing so could save you some serious cash!
New builds for residential or holiday use
New houses constructed for private residential use by you or your family are VAT zero-rated. Holiday homes also come under this bracket, and so are covered by a self-build VAT reclaim. Crucially, HMRC wants to see that your project creates a new dwelling in its own right before it will settle a claim.
Garages
The construction of garages – free-standing or otherwise – is also exempt from VAT, provided that they are included in the same planning permission and VAT reclaim as the new-build residence.
Conversions
If you’re converting a previously non-residential building (i.e. offices, a care home, a shop) into a private home, your project would also be considered VAT zero-rated by HMRC. Reclaiming VAT on conversions, however, falls under a different ‘Notice’ to reclaiming it on new-builds. We discuss HMRC’s Notices in greater detail below.
Renovations which revive an old, unoccupied building
Typically, renovations are not considered VAT exempt. The exception is renovations, which bring an existing dwelling back into use, provided that the dwelling has sat unoccupied for 10 years or more.
Landscaping
Like garages, the VAT on landscaping work covered by the new-build’s planning permission may also be reclaimed at the end of the project. Outside works may include driveways, paths, garden fences, turf and artificial lawns, patios, shrubbery and trees, etc.
Projects not exempt from VAT
It’s important to be aware of which parts of your project are not considered VAT zero-rated, as HMRC will not cover any of these included on a new-build VAT reclaim form. Understanding what is and what isn’t exempt from VAT will help you to budget and manage your cashflow more effectively. Typically, the below will all be subject to VAT at 20%.
Extensions
Extensions to existing homes are not exempt from VAT, as they do not create a new dwelling in its own right, as we touched on before. These could include conservatories, new wings, or garages added onto a house at a later date.
Self-contained accommodation and conversions
Converting your attic into a games room, a garage into a granny flat, or a second living room into an additional bedroom. These are all examples of self-contained accommodation building projects and conversions on which VAT is charged as standard.
Additional, non-residential buildings
Whilst garages and landscaping may be exempt from VAT if included on the planning permission for a self-build home, other detached buildings on the same planning permission will not be. These may include outdoor swimming pool buildings, garden sheds, artisan studios.
Refurbishments
Refurbing your home is not VAT zero-rated, since in doing so you are not creating a new dwelling.
Listed Buildings
Until October 2012, renovations of listed buildings were VAT zero-rated. Today, however, standard VAT of 20% is applied to these types of building projects. The sole exception is where planning permission allows a new-build to use the shell, or façade, of a listed building.
New builds for business use
It is crucial to note that any new-build constructed for profit, or for business purposes, is not considered exempt from VAT. Examples of business driven new-build projects include:
- Building a house to sell it for profit
- Building any non-residential building not covered in the ‘special circumstances’ section below
- Building a house you intend to rent out as a landlord; you may or may not, however, be able to charge VAT on rental income, depending on the scenario
- Building a house which you intend to run as a B&B or hotel (this would extend to its use as an Airbnb, for example)
A crucial exception to this rule is when it comes to home offices. If you work from home, either as a freelance independent contractor or full-time employee, you can use a room in your new-build as an office and still reclaim the VAT on it.
If you’re constructing a non-residential building as a self-employed contractor, it’s important to note that you will likely have to register for HMRC’s Construction Industry Scheme, or CIS.
Special circumstances
Certain exceptions to the rules listed above, regarding self-build VAT reclaim, do exist. Some special circumstances will allow you to zero rate your new-build entirely, whilst others merely reduce the VAT you pay, provided you work with VAT-registered contractors.
VAT exempt
HMRC makes zero-rated VAT provision for new-builds intended for charitable, or other ‘relevant’ residential, use. These include:
- Homes or institutions providing accommodation for children
- Homes or institutions providing accommodation for the elderly, disabled, people with drug or alcohol dependencies, or people with mental disorders
- Hospices which provide accommodation to their patients
- Student halls and residential accommodation for school pupils
- Barracks for members of any of the armed forces
- Village and community halls providing social and/or recreational facilities for local communities
- Charity buildings used for anything other than business
- Adaptation or conversion of an existing home to make it accessible to a person who is disabled
Reduced VAT-rates
The following construction projects are not exempt from VAT, but do qualify for a reduced VAT rate of 5%:
- Renovations of residential buildings which have been unoccupied for two years or more
- Renovations of residential buildings which change the net number of dwelling units (i.e. turning two semi-detached houses into one house, or splitting a three-storey house into three separate apartments)
VAT Notice 431 NB or 431 C?
Provided your self-build project is eligible for VAT exemption according to the criteria we’ve listed above, it will be covered by HMRC VAT Notice 431 NB.
If instead you are converting an existing structure, and it falls within the definitions above, then you’ll be covered by HMRC VAT Notice 431 C.
Regardless of which Notice covers your project, it’s important to be aware that not every part of your project is eligible for a conversion or new-build VAT reclaim.
What’s covered
- Labour costs: Labour on eligible new-builds is completely zero rated, and should not be charged to you by the contractors you hire. If it is included on a labour-costs invoice, you will not be able to reclaim this from HMRC since the money goes to the labourers, not the government. In this situation, you should always challenge your contractors and ask them to remove the VAT charge before paying the invoice.
- Material costs: You can reclaim VAT on all materials typically used in the construction of a new home, including: concrete, timber, bricks, insulation, cement, windows, doors, paint, guttering, etc. You can also reclaim VAT on some additional materials, including: electrical and plumbing materials; fitted furniture like kitchen countertops; extractor fans; fixed fittings like light fittings, flooring, tiles, fireplaces, boilers, solar panels and TV aerials; indoor swimming pools and saunas. Lastly, you can reclaim VAT on the delivery costs of the above materials, but only if they are included on the same invoice.
What’s not
- Equipment hire: g. scaffolding, portable toilets, JCB machines/vehicles
- Tools: g. paint brushes and hand tools
- Professional or supervisory services: g. project manager fees, architect fees, surveying, design and planning
- White goods: g. kitchen appliances like ovens, fridges and freezers, dishwashers, washing machines
- Furniture: Any freestanding furniture, e.g. beds, wardrobes, vanity units, mirrors.
- Carpets: Despite the fact that tiled, wooden, composite and laminate flooring can all be VAT zero-rated, carpets cannot
How to reclaim VAT
New-build VAT and VAT on conversions can only be reclaimed from HMRC once construction of the building is finished, and providing you have the right documentation.
What you’ll need
- Valid planning permission clearly covering all aspects of the self-build which you wish to reclaim VAT on
- Proof of completion for the project, which can include:
- A completion certificate from the building control officer
- A certificate of habitation
- A letter from your bank or building society indicating completion of the project, usually confirming the release of the last element of a finance package
- All original VAT receipts and invoices for materials and labour (where relevant), clearly detailing:
- The supplier’s name
- Your name and address (for invoices over £100)
- The supplier’s VAT number
- The invoice date
- Full description and quantity of the goods supplied/services rendered
- The value of the invoice in full, and of each item individually
How to file a VAT reclaim
The online service or forms you’ll need to file a self-build VAT reclaim or claim for VAT on conversions can be found on HMRC’s website here.
These forms must be filled out in full, and filed with HMRC, along with all relevant documentation as listed above, within three months of project completion. HMRC will usually then acknowledge receipt of your VAT reclaim forms within 10 days, and settle within 30.
Seeking the advice of professionals on your new build VAT reclaim
As you’ll no doubt have surmised from this guide to reclaiming VAT on new-builds and conversions, the process is not always straightforward, and it can be easy to accidentally miss costly elements of your project from your reclaim form.
If at any point you’re unsure about the VAT charges and exemptions on your project, don’t hesitate to contact the professionals to ensure you save as much as possible. Knowing whether you need an accountant’s services can be the difference between coming in over, or under budget.
