Home improvers can often overlook the fact that they can reclaim VAT on a new build or conversion project. Our director Lewis North explains the eligible projects and how to navigate the process.
Self builders can often overlook the fact that they can reclaim VAT on a new build house under HMRC’s DIY Housebuilders Scheme.
Value added tax (VAT) could count for 20% of the budget on a self build or conversion project, but in fact you could reclaim most of that money back once the build is completed.
Ensuring that you incur the minimum amount of VAT overall on your project is key to its financial success.
Here is all you need to know to maximise your VAT reclaim.
(MORE: The Complete Guide to Self Build)
Reclaiming VAT on a New Build: The Rules
building a new house
converting a building into a new dwelling
bringing an existing dwelling that has not been lived in for 10 years back in to use.
Which Projects are Eligible?
To be eligible, the project has to create a new dwelling in its own right. Extensions, refurbishments and annexes, do not create a new dwelling in their own right, and so are not eligible.
Your project must be lawful, for personal occupation by you or a family member and evidence of completion must be provided. Some planning permissions include conditions or restrictions on use or occupancy, which may mean that the project is not eligible.
If your project changes in nature during the course of works (e.g. from an extension to a demolition and new build), then to be eligible you must obtain planning permission confirming this before works continue.
For every self build, HMRC will request to see:
valid planning permission, including your detailed plans
evidence of completion (usually a completion certificate, habitation certificate or a valuation office listing letter)
Only one claim is allowed and all relevant documentation and invoices (which we’ll come onto) have to be submitted to HMRC within three months of your completion certificate being issued.
You will usually get the refund within 30 working days of sending in the claim.
How Much VAT Can You Claim on Your Self Build?
Many self builders regularly overlook this area. You should ensure that you are charged the correct rate(s) of VAT on all costs associated with your project.
Getting this right is very important, as HMRC will not refund any VAT that has been incorrectly charged.
For new builds, conversions, and renovations that bring a dwelling that has not been lived in for 10 years back into use as a dwelling:
The supply of materials only is always at the standard rate of VAT, which is currently 20% (5% on some energy items). You can recover all of the VAT incurred on eligible materials via the scheme
The supply of labour only or the joint supply of labour and materials should be at the zero rate (0%) for new builds and at the reduced rate, currently 5%, for conversions and renovations that bring a dwelling that has not been lived in for 10 years back into use as a dwelling. At the end of the project, the owner can reclaim the 5% VAT on eligible joint supply of labour and materials.
Get (and Keep!) All Invoices
Obtain and keep all relevant invoices to ensure that you can recover all eligible VAT.
Remember, you can recover the eligible VAT on invoices that include both eligible and non-eligible items.
Projects You Can Reclaim VAT On
The type of projects you can reclaim VAT on under the DIY Housebuilders’ scheme include:
New builds. Creating a new dwelling built from scratch, providing it is to be used by you or your relatives as a family home for residential or holiday purposes. Any existing building must be demolished to ground level. Where required by planning consent, an existing façade can be retained
Garages for use with the new dwelling and covered by planning permission at the same time
Conversions that create a new dwelling. Converting a non-residential building, for example, a barn, old church, business premises, into a new dwelling
Renovations that bring a dwelling that has not been lived in for 10 years back into use as a dwelling
If the new build or conversion is a holiday home for you and your family’s personal use
Landscaping and outside works covered by your planning permission. This may include paving, fencing, turf and shrubs, and so on.
Projects You Cannot Claim VAT Back on Include:
Extensions and self-contained accommodation (for example, a granny annexe) that do not create an independent dwelling in their own right, unless built at the same time as part of a new dwelling
Separate buildings that are part of your planning permission, apart from a garage — for example, a garden store or a detached swimming pool building
Refurbishments of existing dwellings (unless empty for 10 years)
A new dwelling constructed for any business use, such as a holiday rental or buy to let
Which Materials Can You Claim VAT Back On?
Examples of the materials you can claim VAT back under the DIY Housebuilders’ scheme:
All materials normally incorporated in a new dwelling — all construction materials, for example, concrete, blocks, bricks, insulation, sand, cement, plaster, timber, roofing, stairs, windows, guttering, doors, paint, etc
Electrical and plumbing materials
Fitted furniture such as kitchen units and worktops
Fittings, such as light fittings, wooden floor systems, linoleum, floor tiles, door furniture, fireplaces and fires, fixed towel rails, mirrors, solar panels, boilers, sewage treatment plants, TV aerials, curtain poles
Swimming pools and saunas inside or linked to the new dwelling
Delivery charge included on an invoice for materials
Materials you Cannot Claim VAT Back on Include:
Equipment hire, for example, scaffolding, JCB hire (machine only), WC hire, etc
Consumables, for example, paint brushes, hand tools, etc
Professional fees, for example, architects’ fees, Standard Assessment Procedure (SAP) Calculations, project manager
Kitchen appliances, including those integrated, for example hob, oven, dishwasher
Bedroom furniture, bathroom furniture, such as vanity units and free-standing units
Delivery costs, when separately invoiced by a courier
Getting Advice on Reclaiming VAT
Many tradespeople and contractors are not experienced in dealing with the VAT rules on new builds and eligible conversions.
They sometimes say: ‘it doesn’t matter now, as you will get the VAT back at the end anyway’.
However, this is not true. Don’t leave it to the contractor.
If you are unsure of any aspect of VAT on your project, engage the services of a professional to help you get it right.
Renovations to dwellings empty for two years or more are eligible for the reduced rate of VAT of 5% via a VAT-registered contractor
Works involving a net change in the number of dwelling units are also eligible for the reduced rate of VAT of 5%. Examples include converting two cottages into one house or reverting three flats back into a house
Some adaptations work to alter a house for someone who is disabled is zero rated for VAT.
These reduced VAT rates are only available via VAT-registered contractors and not under the DIY Housebuilders Scheme.
Valid VAT Invoices
Ensure you retain all valid VAT invoices, as the originals must be submitted to HMRC with your claim.
Electronic payment receipts and emails confirming orders are not valid VAT invoices and so any VAT paid is potentially lost.
Invoices should include:
the supplier name
their VAT number
the invoice date
a description of the goods supplied (and services if applicable)
the value of the invoice
If one of your tradespeople/contractors uses their trade account to source your materials and so is in their name, ensure that you pay the supplier direct and keep the evidence, as it will be required.
The VAT incurred on invoices from VAT-registered suppliers in the EU can be claimed too, as long as the invoice includes the relevant information (including their VAT number).
Many purchases are made online these days, so ensure that you obtain a valid VAT invoice when buying, as this may prove difficult to obtain at a later date.
How to Reclaim VAT – Summary
Ensure your project is eligible
Ensure that you are charged the correct rates of VAT on all invoices
Don’t ask a non-VAT registered contractor to supply materials, as you won’t be able to reclaim VAT on those materials
Ensure that you are charged the zero rate of VAT on the supply of labour only and the joint supply of labour and materials on new builds
Obtain valid VAT invoices as you go and keep them safely together
Keep all of your relevant invoices together
Ensure your claim is made within three months of completion
Engage the services of a professional to ensure you recover the maximum amount of VAT and so minimise its impact on your budget