Self-builders can forget that they can recoup VAT on new construction and conversion projects. Under HMRC’s DIY Housebuilders scheme, self-builders can reclaim 20% of the entire project budget attributable to VAT, as long as your project is eligible.
Stephen Clark from Finbri bridging loans that arranges self-build finance – says, “Reclaiming VAT on a new-build can be easily overlooked or misunderstood by self-builders. When building a new property, the VAT on materials such as concrete, doors and windows can be reclaimed, which can impact how financially successful the project will be. I know of a self-builder whose project involved a dilapidated building, but it didn’t qualify for the VAT reclaim as it hadn’t been vacant for 10 years. They worked out that they’d be financially better off to demolish the property and build a new one simply to take advantage of the current VAT reclaim to the tune of some £30,000 on the build.”
This article outlines all you need to know about reclaiming VAT; including which parts of a project can be reclaimed, what documentation is required, and which projects are eligible.
Guidelines for reclaiming VAT on a self-build
The DIY Housebuilders scheme enables you to reclaim the VAT paid to HMRC on new builds and conversions if you are:
- Constructing a new house
- Turning an existing building into a new dwelling
- Renovating an old dwelling that has been vacant for 10 years
To qualify, the project must result in the creation of a new residence. Extensions, renovations, and annexes do not constitute a new house and are therefore ineligible to reclaim tax.
Your project must be legal, for personal use by you or a family member, and you must give proof of completion. Some planning permissions have restrictions on use or occupancy, which may disqualify the project.
If your project’s nature changes during construction (for example, from an extension to demolition and new construction), you must get planning clearance certifying this before work can proceed.
For each self-build, HMRC will want the following:
- Valid planning approval containing comprehensive plans as proof of completion. This will consist of either a habitation certificate, valuation office listing letter or a completion certificate.
- Only one claim is permitted, and all the necessary documentation and invoices must be filed to HMRC no later than 3 months after receipt of your completion certificate.
Typically, you will get your reimbursement within 30 business days of submitting your claim.
How much VAT am I able to reclaim?
To reclaim VAT, you will need to ensure you are charged the correct VAT rates on all project expenses, as HMRC will not reimburse VAT that has been erroneously levied.
For new construction, conversions, and renovations that put a 10-year-vacant dwelling back into use as a residence:
- You can recover all of the VAT incurred on qualified materials, which currently stands at 20%.
- Regarding labour or the supply of labour and materials, VAT is currently set at 0% for new builds and 5% for property conversions and renovations that would bring a dilapidated property that has been vacant for 10 years back into a livable dwelling. At the end of the project, the owner can reclaim 5% VAT on an eligible joint supply of labour and materials.
Always obtain and retain all applicable invoices to ensure you can reclaim all recoverable VAT. The invoices can also contain both eligible and ineligible items, and still be recoverable.
On which projects can I recoup VAT?
Under the DIY Housebuilders scheme, the following projects qualify for a VAT refund:
- Creating a new build from scratch, provided that it will be utilised by you or your family as a residential premise or as a holiday home. To be eligible, all existing structures must be destroyed.
- Garages that are built for use with the new dwelling as long as it has relevant planning permission.
- Converting a non-residential building such as a barn, old church, or commercial space into a new residence.
- Renovations that bring a 10-year-vacant home back into use as a residential property.
- Landscaping and outside construction work, as long as it is covered by planning permission. This may comprise paving, fencing, grass and bushes, etc.
Which projects are not eligible for a VAT refund?
- Extensions and self-contained accommodations such as annexes that are not established as individual dwellings, unless constructed concurrently with a new dwelling.
- Separate constructions, even if part of the planning permission, are not eligible for a VAT refund. Exceptions include garages where you can reclaim the VAT.
- Renovations to existing properties, unless they have been empty for 10 years
- A new home constructed for commercial usage, such as a short-term holiday rental or buy-to-let.
Which materials are eligible for a VAT refund?
The following materials qualify for a VAT refund under the DIY Housebuilders scheme:
- All building materials, including bricks, insulation, sand, cement, concrete, plaster, wood, roofing, stairs, guttering, doors, windows, etc.
- Any plumbing materials.
- Electrical materials.
- Customised furniture such as kitchen cabinets and countertops.
- Extractor fans.
- Accessories such as flooring, doors, light fittings, fireplaces, solar panels, boilers, curtain poles and more.
- Swimming pools and saunas that are within the new dwelling or connected to
- Any delivery costs that are included in a bill for materials.
What materials are you unable to claim the VAT back on?
- Equipment rental, such as scaffolding, JCB rental (machine only), WC rental, etc.
- Examples of consumables include paint brushes, hand tools, etc.
- Architect fees or project management fees.
- Bedroom and bathroom furniture, including vanity units and freestanding units, are included.
- Any kitchen equipment, including integrated appliances such as stove, oven, and dishwasher.
- Delivery expenses, when billed separately by a courier.
What should my invoices include?
The original VAT invoices must be presented to HMRC together with your claim. Electronic payment receipts and order confirmation emails are not legitimate VAT invoices; therefore, any VAT paid may be lost.
Make sure that all invoices contain:
- The name of the supplier/business
- The date of the invoice
- The supplier’s VAT number
- An outline of the goods and services supplied
- The total amount of VAT due
- The total amount of the invoice
When using suppliers or tradespeople that buy materials using their trade account, make sure you pay the supplier yourself and keep the documents in case they are required.