Our Guide to Claiming Back VAT on a Self Build Project

Self-builds are zero rated for VAT. Mike Hardwick explains what you'll be able to claim, and how to claim it
by Mike Hardwick
9th May 2020

When you buy a house on the open market, you don’t have to pay VAT, whether it is a new home or has been previously occupied. So when you self build your own home, the same principle applies under guidance known as VAT Notice 431 NB (‘NB’ as in ‘new build’).

Whether you’re starting from scratch with a new build home or converting another type of property into a residential dwelling, labour is essentially zero rated for VAT. You will also be able to claim back some or all of the VAT on the materials element of the build.

However, there are exceptions to this rule, and you need to be clear about what can and cannot be claimed for. There are some common misconceptions about VAT reclaims, which can result in disappointment when expected savings don’t actually materialise.

I’m giving you the lowdown on how VAT applies to self build projects, and how to go about claiming back the cash that you are entitled to.

VAT Notice 431 NB for Self Build Projects

VAT Notice 431 NB is the scheme that covers VAT reclaim on new build properties in the UK (this includes the Isle of Man, but not the Channel Islands). The premise of self build VAT reclaim is that you are building your principle private residence. You can’t claim the VAT back if you plan to use the property for a business purpose.

So if you are building to sell for a profit, let it out or run a bed and breakfast, then you won’t be allowed to reclaim VAT. Don’t worry if you intend to work from home, though: using one room as an office is considered acceptable by the taxman.

VAT Refunds for Conversion Projects

Conversions of non-residential properties − structures that have never been lived in or uninhabited for 10+ years − are covered by another scheme, VAT Notice 431 C .

It’s basically the same process as with new builds, but there are differences in the way VAT can be reclaimed against labour for a conversion (and the amount).

For example, builders will charge you VAT at 5% on labour-only or supply-and-fit contracts. You can reclaim this, along with the 20% on materials, at the end of the project.

Interestingly, you can also make a VAT reclaim if you buy the shell of a new property from a developer and then complete the fitting out yourself or through another builder. I suspect that this option will become more popular as the concept of custom building takes hold.

It’s worth having a look at the HMRC website, which has links to the forms you will need as well as helpful supporting notes.

Claiming back VAT on extensions & renovations

Any work you undertake on an already completed building will not be covered by the zero-rated VAT scheme. 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.

This rate applies to all labour and materials used on a renovation project, but it cannot be reclaimed – it is up to your builder to invoice you correctly. The best way of proving whether a house has been unoccupied is by checking council tax payments or utility bills.

VAT rules for listed buildings

The rules have changed for listed buildings, too. VAT on approved alterations used to be reclaimable, but as from October 2012, all repairs, alterations and extensions on listed buildings are liable to VAT at the full 20% rate.

However, there are exceptions here, too, in that if you obtain permission 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 tricky area with some fairly strict definitions of what is and isn’t allowed, so it’s best to check with HMRC before you start work.

What can you claim for under the VAT 431 scheme?

Labour on a new-build property is always zero rated, so it should never be charged, regardless of whether the builders or tradesmen you use are VAT registered or not. When it comes to the materials incorporated into the build, you need to claim the VAT back afterwards.

Conversions are slightly different and in some cases, VAT is charged on labour but at the reduced rate of 5%. This is the main reason for having different claim forms for new build (431 NB) and conversions (431 C).

A common misconception is that all VAT on a self build project can be reclaimed. This is not so − the VAT due on professional or supervisory services (like surveys, design and planning, and tool and plant hire) is not exempted.

The HMRC website notes show what can and can’t be claimed for, but the list of exemptions is extensive and not entirely logical, so I’ve produced a list (found at the end of this article) showing what can and can’t be reclaimed.

This is not exhaustive, so if in doubt, either call HMRC’s VAT DIY helpline for advice, or just include it in your submission anyway. The worst that can happen is that someone puts a line through the item and it gets rejected.

How do I reclaim VAT on my self build?

Before you start the build, download the relevant pack from HMRC’s website and then collate all of the receipts and invoices for the materials you will be claiming for as you go along.

It is important that these are all original documents, have the supplier’s VAT registration number, plus list the quantity and description of the goods and the price of each item. If the value of an invoice is more than £100, then it must show your name and address.

Anyone who buys eligible goods for your project can make the claim. Your builders can do some or all of the reclaim for you and simply not pass the VAT charge on to you at all, which can really help your cash flow.

However, it is frequently the case that you will have bought considerable quantities of materials yourself and will therefore want to make your own submission. Claims are always made at the end of the project – usually after your building control officer has issued the completion certificate.

There are other documents that can be used to prove completion, such as a certificate of habitation. Another option is to obtain a letter from your bank or building society confirming that the last element of any finance package has been released because they consider the house complete.

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

VAT when buying materials from overseas

If you have bought items from within the EU, you can claim at the rate paid, converted into sterling. If you have imported building materials into the country from outside the EU, then you will need to provide evidence of the VAT paid, together with the original shipping or transit documents.

Learn more: Can we reclaim VAT after Brexit?

Correcting VAT errors

If you find you have been charged VAT in error (by paying for VAT on labour on a new build project, for example) then you won’t be able to claim that erroneous payment back from HMRC. This is because the money will not have gone to them. As no VAT was due, it will have gone straight to your builder.

Your only recourse will be to go back to the builder and challenge the price he has charged. There will be a grace period allowed with HMRC to enabler genuine mistakes to be adjusted against the builder’s VAT account. This is time limited, however, so if you suspect an error, act quickly.

New Homes and VAT: What you can and can’t claim money back for

Items that can be claimed for include:

  • Building materials, such as bricks, timber, tiles and cement
  • Air conditioning systems, dust extractors and built-in vacuum cleaners
  • Builders’ hardware, such as door furniture and rainwater goods
  • Joinery items, such as windows, doors and stairs
  • Glass and double glazed units
  • Bathroom accessories (towel rails, soap dishes etc)
  • Decorating materials (wallpaper, paint etc)
  • Gas or electrical systems designed to heat space or water (includes Agas and solid-fuel cookers if designed to provide heating)
  • Gas or electrical systems designed to provide ventilation, cooling, purification or dust extraction
  • Central controls for lighting, heating & ventilation (but not the remotes, touchscreen interfaces etc)
  • Lifts and hoists
  • Light fittings (including chandeliers and outside lights)
  • Aerials and satellite dishes
  • Burglar alarms, fire alarms and smoke detectors
  • Curtain poles and rails
  • Fixed kitchen sinks, cupboards and worktops
  • Fixed floor coverings such as engineered wood and ceramic tiles
  • Permanent boundary fencing
  • Materials for installing services like water, gas and electricity
  • Plumbing and electrical installations including central heating, fixed heaters, fires and fireplaces, solar panels, bathrooms and showers
  • Saunas and swimming pools (if located inside the building)
  • Turf, plants and trees as detailed on an approved planning permission

Items that cannot be claimed for include:

  • Domestic electric and gas appliances, such as ovens, fridges, microwaves, coffee makers and dishwashers etc, whether built-in or freestanding
  • Lampshades and ornamental light fittings
  • Electrically operated garage doors (or door locks) and gates
  • Curtains and blinds
  • Carpets, underlay and carpet tiles
  • Audio equipment, built-in speakers, CCTV, TV receivers etc
  • Consumables (sandpaper, white spirit etc)
  • Bedroom furniture, bathroom furniture (ie vanity units), mirrors
  • Garden furniture, ornaments and sheds

Main image: The Glosters were able to claim back £22,000 in VAT following their oak frame and SIPs build

4 Comments

  1. Dave Stevenson says:

    You say that “intelligent lighting systems” are excluded from VAT reclaim, are you sure about that? The HMRC VAT reclaim notes include “central controls (to the extent that these relate to light, heat or ventilation)” as “articles incorporated into the building” and therefore allowable. Does this not cover “intelligent lighting systems” ?

  2. Chris says:

    Hi Dave,

    You are correct that central controls for lighting, heating & ventilation are now included as part of the zero-rated VAT scheme. The interfaces – touchscreens, remote controls etc – remain ineligible for zero-rating.

    We’ve updated the article accordingly – thanks for bringing it to our attention.

    Best wishes,

    Chris

  3. MAUREEN moreton-evans says:

    does the cost of the build include the price of the land or not, and how long after building can you sell (if needed) to still be able to reclaim vat

  4. Jo Whiley says:

    Could I ask a question regarding VAT. We have planning permission to build in our existing horse riding/stable yard business. The house permission was granted with the condition that it is solely for purposes for the business. This will be our family home so that our business can continue. My question is will our self build still be zero VAT. The business itself is not VAT registered.
    I hope that makes sense!
    Jo

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