New builds and VAT – Did you know that, when you build your own home from scratch or convert a building into a new dwelling, you don’t have to pay value added tax (VAT)? The DIY Housebuilders Scheme (Notice VAT431NB for new builds and Notice VAT431C for conversions) allows you to reclaim the VAT from HMRC that you have paid out for your project which can count for 20% of your budget.

The labour on your project is essentially zero rated, and you will be able to claim back the VAT on some or all of the materials you buy once the property is finished. However, there are some misunderstandings about claiming VAT so it’s important to be clear from the start of the project what can and cannot be claimed for.

What can you claim VAT on new builds back on?

To be able to claim VAT back on a new build, the property needs to be your principle private residence. 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 can also be claimed for as well as any landscaping and outside works covered by your planning permission. This may include paving, fencing, turf and shrubs, and so on. You cannot claim VAT back if you are planning on selling the property or use it for a business purpose, such as letting it out or running a bed and breakfast. Using one room as a home office is considered acceptable by HMRC.

Converting a non-residential building, for example, a barn, old church, business premises, structures that have never been lived in or uninhabited for 10+ years can be claimed for but there are differences in the way VAT can be reclaimed against labour for a conversion and the amount. At the end of the project, the owner can reclaim the 5% VAT on eligible joint supply of labour and materials.

What about extensions and renovations?

Most extensions and renovations will be subject to VAT on labour and materials at the standard rate of 20%. This includes converting a loft, constructing a granny annex or new garage (when built for use with an existing dwelling). Tradespeople who are not VAT registered can save you 20% VAT on their labour. You will still have to pay VAT on materials at the standard rate.

There are some exceptions, though. The government introduced a reduced rate of 5% VAT for houses requiring refurbishment that have been unoccupied for two or more years. This rate applies to all labour and materials used on a renovation project, but it is up to your builder to invoice you correctly rather than you reclaiming it.

Special circumstances

The conversion of an existing dwelling involving a net change in the number of units are also eligible for the reduced rate of VAT of 5%. For example, converting two cottages into one house.
Some adaptations work to alter a house for someone who is disabled is zero rated for VAT.

Listed buildings

All repairs, alterations and extensions on listed buildings are liable to VAT at the full 20% rate.

However, there are exceptions here, too. If your planning permission allows you to demolish all but the facade or shell of a listed building, then the construction work could be classified as a new build and the VAT element might be eligible for reclaim. It’s a complex area with strict definitions of what is and isn’t allowed, so it’s best to check with HMRC before you start work.

Which Materials Can You Claim VAT Back On?

For claiming VAT on a new build:

1. All construction materials, for example, concrete, blocks, bricks, insulation, sand, cement, plaster, timber, roofing, stairs, windows, guttering, doors, paint, etc
2. Electrical and plumbing materials
3. Fitted furniture such as kitchen units and worktops
4. Extractor fans
5. 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
6. Swimming pools and saunas inside or linked to the new dwelling
7. Delivery charge included on an invoice for materials

Which materials you cannot claim VAT on new builds back on?

1. Equipment hire, for example, scaffolding, digger hire (machine only), WC hire, etc
2. Consumables, for example, paint brushes, hand tools, etc
3. Professional fees, for example, architects’ fees, Standard Assessment Procedure (SAP) Calculations, project manager
4. Kitchen appliances, including those integrated, for example hob, oven, dishwasher
5. Bedroom furniture, bathroom furniture, such as vanity units and free-standing units
6. Carpets
7. Delivery costs, when separately invoiced by a courier

How do I claim back VAT on my new build?

You only get one chance to submit your VAT reclaim for your new build. Ensure you keep an organised record of your spending from the start of the project. Keep all original VAT invoices which should include:

1. The supplier name
2. Their VAT number
3. The invoice date
4. A description of the goods supplied (and services if applicable)
5. The value of the invoice

Electronic payment receipts and emails confirming orders are not valid VAT invoices. VAT that is paid can be potentially lost. Ensure that you obtain a valid VAT invoice when buying. Otherwise this may prove difficult to obtain at a later date.

VAT claims are always made at the end of the new build project. For every new build project, 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.

You have three months to submit your claim. HMRC will acknowledge within 10 days and will usually settle within 30 working days.