VAT Reclaims for Conversion Projects – VAT431C Rules Explained

What can you claim for under the VAT431C reclaim scheme for conversions? 

Under the VAT reclaim for conversions scheme, VAT431C, you may claim a refund for the builders’ work on a conversion of a non-residential building into a home. This covers the costs relating to work to the fabric of the building, such as installing windows, roofing materials, electrical rewiring etc.

VAT can be reclaimed on building materials used in barn conversions, such as the stunning aluminium Shuco glazing systems prominent on this project in North Yorkshire

“On conversions, you should initially pay 20% VAT for materials purchased from suppliers and a reduced rate of 5% VAT to contractors,” says Andrew. So, any eligible invoices from VAT-registered contractors and trades (whether for labour-only or labour and qualifying materials) should use the reduced 5% rate. If you’re buying materials directly yourself, you’ll need to pay the full 20% at source.

You will then be able to reclaim both types of VAT from HMRC on completion of the project, which effectively makes home conversions zero-rated for VAT.  It bears repeating that contractors must invoice at the correct rate of VAT on both materials and labour in the first place.

The team at Bindloss Dawes was commissioned to reimagine this converted school with a sensitive extension, tapping into the original building’s potential. The result takes shape in a two-storey, timber-clad addition that sensitively reinterprets the old school’s form and character while adding a contemporary touch. Photo: Francesca Lovene

If the builder incorrectly charges VAT at the standard rather than the reduced rate and you pay it, HMRC won’t process your claim. You’ll then be left in the challenging position of trying to recoup the difference by asking your contractor to refund you. They have their own obligations to HMRC, so may not be able to do this – and the fault will lie with you for paying the wrong rate.

“Your whole contract with a contractor or company coming to site to do work should be VAT at 5%,” explains Andrew. “It is often thought that a contractor charging the VAT at 5% in the first instance is an option, and if you are charged the VAT at 20% then this can still be included in a VAT reclaim at the end of the build. This is not the case. It is not an either/or situation – the rules must be followed precisely.”

CASE STUDY Workshop conversion with a VAT reclaim of £4,714

Marc Fiedorowicz had been living in his grandmother’s Oxfordshire house that was damp, leaky and in desperate need of an upgrade. But when he brought in architect Allister Godfrey, he suggested shifting focus to another building on the same plot; an old workshop.

After planning and financial struggles, Marc managed to salvage the workshop’s structure to create an open-plan and light-filled dwelling. The build consists of a steel frame and treated softwood timber cladding which complements the home’s green belt setting.

Photo: Graham Holland

Thanks to the well-insulated design, the modern dwelling has very low running costs. Underfloor heating is laid throughout both storeys, powered by an air source heat pump. “All in all, it costs about £200 a month to run,” he says.

Photo: Graham Holland

“The heating has been off since February, though, as the house is warm enough as it is.” Composite aluminium-timber windows from Velfac also help keep the house cosy, thanks to excellent insulating qualities.

Which items are not covered under the VAT reclaim rules for conversions? 

When it comes to building materials, be aware that the reclaim scheme only applies to fixed products and the relevant costs for installing them –  so it’s not for things like white goods. Under the scheme, qualifying materials are considered to be those ‘incorporated’ in the building, where their fitting or removal would require the use of tools and result in remedial work.

A search for the perfect site to grow their landscaping business led Build It readers, Toby and Bella, to a derelict cob, stone, and timber barn on their family’s farmland plot. Keen to create an eco-friendly home, the couple chose to complete the project under the Living Building Challenge, which celebrates the wider setting of a building and its ecological impact. Photo: Simon Burt

Think bricks, windows, doors etc. You can claim for kitchens but not other fitted furniture. Also excluded are electrical or gas appliances, apart from those needed for space heating/cooling, heating water and ventilation. Carpets are excluded, too, while hard surfaces that need to be fixed in situ, such as wood flooring, can be claimed for.

Professional fees, such as those for architects, surveyors or engineers, do not qualify for VAT exemption. In some instances, you may work with small businesses or sole traders who are not VAT registered. This means they should not charge the tax on their fees in the first place.

How do you submit a VAT reclaim for a home conversion project?

In order to make a VAT reclaim claim, you should apply within three months of completing the conversion. HMRC considers this to be the date on the completion certificate issued by building control – so once you have it, the clock is ticking. You’ll need provide the completion documentation with your claim, and will usually be refunded within 30 working days.

When Build It readers Michael and Erica Hammill took the plunge and bought this abandonded mechanical garage, it was dark, cold and damp, with parts of the roof missing. The project involved replacing the timber rafters and slate roof tiles, alongside insulating the entire roof structure, digging out and levelling the property’s floor, and adding in drains for the bathrooms. Photo: Dave Burton

It is worth noting the guidance on VAT for conversions is very different to the VAT reclaim rules for new build homes. Also, as conversion projects are all unique, there may be some that don’t meet the requirements for a tax reduction. If you are in doubt, it is best to consult a VAT professional, your quantity surveyor or your architect to discuss any potential liability before you proceed with your development.

The buck stops with you when it comes to finding the correct rate of VAT that applies to your project. So, get advice and seek guidance if you have any uncertainties – if you pay too much tax, the HMRC may not refund you if an incorrect sum was collected in the first place.