Firstly, when you buy a home in the open market you don’t have to pay VAT, whether it’s a new home or previously occupied, in essence, transactions in residential properties are normally exempt from VAT. Similarly, when you rent residential property rents are exempt. There are different VAT rules on Commercial properties.
When a contractor is employed, they would zero rate the construction cost for a new build property to the owner. Specific materials that are classed as blocked inputs are charged at a standard rate. This is the general rule for new builds. For all other types of conversions, there are different rules, and some have reduced rates of VAT.
Since 2019 we have seen an increasing trend in DIY housebuilders. This article will focus on the HMRC’s scheme for DIY housebuilders and how to reclaim any VAT paid on building materials and services. You can only claim for building materials that are part of the building and cannot be removed without tools or damaging the building. The scheme also only allows making one claim so it’s important to understand the scheme comprehensively. It’s always recommended to speak to your accountant. You have only 3 months from completing the work to apply.
Firstly, let’s look at what would qualify for this scheme.
- building a new home
- converting a property into a home
- building a non-profit communal residence, for example, a hospice
- building a property for a charity
To qualify as a new home, it must be separate and self-contained, be for you or your family to live or holiday in not be for business purposes (you can use one room as a work-from-home office). For a conversation to qualify it must be a non-residential building and have not been lived in for at least 10 years
- What does not qualify under the scheme
- building projects in the Channel Islands
- materials or services that do not have any VAT – for example, they were zero-rated or exempt
- professional or supervisory fees – for example, architects or surveyors
- hiring machinery or equipment
- buildings for business purposes
- buildings that cannot be sold or used separately from another property because of a planning permission condition
- building materials that are not permanently attached to or part of the building itself
- fitted furniture, some electrical and gas appliances, carpets, or garden ornaments
if you are working in the construction industry and building a home for someone else there are different rules that apply.
There are two main forms that should be filled in to claim the VAT refund.
- For new builds, you would use Form N431NB (https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-for-new-houses-vat431nb)
- For a conversion, you would use form 431C (https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-and-notes-for-conversions-vat431c)
Both forms should be completed and sent with the following documents;
- all original invoices (only originals, in GBP, and explain why if the invoice is not under your name)
- Proof of payment (where the invoice is not under your name only)
- a full set of building plans
- either Full Planning Permission or both the Outline Planning Permission and Approval of Reserved Matters
- the Building Regulation Completion Certificate or other evidence the work is complete – there’s a list of accepted documents in the form
- for conversions, you must also prove the building had not been lived for at least 10 years.
Any work you undertake on an already completed building will not be covered by this scheme nor will be zero-rated for VAT. This includes projects such as refurbishment, adding an extension, converting the loft, or constructing a granny annex or new garage. All of these will attract VAT at 20% on materials and labour − even though they are ‘new build’ additions to the property.
There are some exceptions, though. To make the refurbishment of properties in run-down areas more economically attractive, the government introduced a reduced rate of 5% VAT for houses that have been unoccupied for two or more years.
If you have any questions about this article, thinking of doing a DIY project, or have just completed your DIY self-build we would be happy to assist you. Our team of expert accountants have over 30 years of Industry and Property Experience.