When you opt to self-build your own home from scratch, you don’t have to pay VAT!!
The labor on your project is essentially zero rated and you’ll be able to claim back the VAT on the materials you buy once the property is completed. However, there are some misconceptions about this tax break, so you need to be clear from the start of the project about what is and isn’t covered.
To qualify for VAT reclaim the/your new house needs to be your principal private residence, meaning you can’t get VAT back if you’re going to sell the dwelling or use it for a business purpose, such as letting it out or running a bed and breakfast.
You can also only apply for items that are fixed into the building, that means things like kitchen appliances, carpets, wardrobes, built-in-speakers are excluded.
Be aware that you only get one chance to submit your VAT reclaim so it’s vital you do it correctly. You should keep an accurate record of your spending from the very beginning of your project, create a document/excel spreadsheet with all expenditure. Keep original documents and receipts with the supplier’s VAT registration numbers on, plus the quantity of items, full description and price of each item. Note that invoices over £100 will need to show your full name and address. Once you receive your completion certificates, you only have 3 months to submit your VAT reclaim to HMRC.
What is covered for reclaim?
There is a scheme in place within the UK that allows for VAT reclaim on new build properties, VAT notice 431 (NB) As noted above, the reclaim is on the premises that this is going to be your primary residence. It cannot be reclaimed if the property is used for business purposes, however there is an exception that you can use the property to work from home by using one room as a home office.
There are options and ways of claiming back VAT if you purchase the shell of a new property from a developer and then complete the fit out yourself or through a builder/contractor. It’s well worth having a look on HMRC’s web site at the various options to gain more insight into this method. https://www.gov.uk/vat-building-new-home
Extensions and renovations
Works carried out under the banner of ‘a home extension’ (such as a refurbishment, rear extension, side extension or loft conversion etc.) do not qualify for the VAT reclaim scheme. We appreciate that these works are actually new works, and thus may fall under the new build umbrella, however these works will attract the current standard rate of VAT at 20%.
There are slight exceptions to the rule though, if a property has been unoccupied for a period of more than 2 years, the government has introduced an ‘incentive scheme’ where works can be carried out at a reduced rate of 5% VAT. This rate applies to all labor and materials used on a renovation project, but it cannot be reclaimed, it is up to your builder to invoice you correctly. We would recommend that this is discussed with your builder at the pre-tender stage.
Listed building
VAT reclaim has changed on approved alterations to listed buildings. This used to be reclaimable, however as of October 2012, all repairs, alterations and extensions on listed buildings are liable to VAT at the current rate of 20%.
However, there are exceptions here too. If you obtain planning consent to demolish all but the facade or the shell of a listed building, then the construction works could be classed as a new build and the VAT element might be eligible for reclaim. As this is a rather grey area, we would always recommend that clients seek clarification with HMRC before they start work.
What can you claim for?
Materials
You can claim back the VAT on materials used on the build, post completion. Keep records of all purchases via the use of an excel spreadsheet type document. Ensure that all receipts have your address on and are issued for your attention.
Labour
Labour on new build properties is always zero VAT rated, therefore is should never be charged. This applies to tradesman, builders and contractors whether they are VAT registered or not.
Conversions are slightly different, and in some cases, VAT is charged on labour but at a reduced rate of 5%. There are various different claim forms that HMRC provide, 431NB for new build developments and 431C for conversions.
Whilst VAT can be claimed back on materials that are used to construct a newbuild property, 3rd party services and fees such as surveys, consultant fees, Architects/engineers fees are not reclaimable.
How do I claim?
Before your development commences, download the relevant package of information from HMRC, then collate and retain all the relevant invoices and receipts associated with the build, as the process goes along. A list of the items that can be claimed for is highlighted at the end of this blog.
These need to be the original documents complete with supplier’s VAT registration numbers and invoices/receipt addressed to the client/owner. If necessary, your builders can make some of all of the VAT reclaim on your behalf, and therefore will not pass the VAT charge on, which may make cashflow better.
The chances are, as the client, you will have purchased most of the goods, therefore doing the VAT reclaim yourself may be a more through exercise and will ensure that everything is claimed for.
Claims are always made once the project has completed and once you have received your final certificate from building control. Normally your building regulations certificate is sufficient to confirm completion of the project and to commence the VAT reclaim process, however other documents available would be a certificate of habitation or a letter from your bank or building society confirming that the last element of a finance package has been released and that they consider the property to be complete.
You have a maximum of 3 months to make your VAT reclaim, once your project has finished. HMRC will normally acknowledge a VAT reclaim within 10 days and will usually settled within 30 working days.
Can I claim for items bought outside of the UK?
Items/products bought within the EU can be claimed for at the rate paid converted into sterling. If you have imported building materials into the country from outside the EU, then you will need to provide evidence of the VAT paid, together with the original shipping/delivery documents.
What happens if I pay VAT by accident?
If it turns out that you have been charged VAT in error (by paying VAT on labour on a new build) then unfortunately you won’t be able to claim that payment back via HMRC, as the money will not have gone to them. The VAT will have been paid to the builder, therefore it may be worth seeking a refund directly from them.
Items that can be claimed for:
• All building materials, bricks/block, mortar, timber, concrete, tiles etc.
• Internal door furniture.
• Air conditioning systems and heat recovery systems.
• Joinery items such as windows, door, architraves, stairs etc.
• External windows and doors.
• Bathroom accessories (towel rails, soap dishes etc.)
• Decorating materials (wallpaper, paint etc.)
• Gas and electrical systems designed to provide ventilation, cooling, purification or dust extraction.
• Lifts and hoists.
• Light fittings (inc. external lights).
• Aerials and satellite dishes.
• Burglar alarm systems, fire alarms and smoke detection.
• Curtain poles and rails.
• Fixed kitchen sink, cupboards and worktops.
• Fixed floor coverings.
• Permanent boundary fencing.
• Materials for installing services like water, gas and electricity.
• Plumbing and electrical installations inc. central heating systems, fixed heaters, fires and fireplaces, solar panels (PV), bathrooms and showers.
• Saunas and swimming pools.
• External landscaping such as turf, plants and trees as required via planning conditions.
Items that cannot be claimed for:
• Domestic electric and gas appliances such as ovens, fridges microwaves, coffee makers, dishwashers etc. weather built in or not.
• Lampshades and ornamental light fittings
• Electrically operated garage doors or gates.
• Curtains and blinds.
• Carpet and underlay and carpet tiles.
• Audio equipment, built in speakers, intelligent lighting systems, CCTV, TV receivers etc.
• Consumables.
• Bedroom or bathroom furniture such as vanity units and mirrors.
• Garden furniture, ornaments or sheds.
Thinking of starting your own new build or similar project? Check out our portfolios below.
New Build Portfolio
Extension & Renovation Portfolio
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