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Q&As
Can I reclaim VAT on my conversion project?
We own and are converting a former silk mill workshop – an empty industrial building that has never been residential – into our house. It’s currently in very poor condition and has full planning for conversion with no restrictions on its future sale etc.
For clarity, am I correct in thinking that if I employ a VAT registered builder, he charges me VAT at 5% on all labour as well as qualifying materials? And any qualifying materials I purchase myself I pay the standard 20% VAT? Then on completion I claim both lots of VAT back from HMRC?
One Answer
One of the main appeals of a conversion project is its uniqueness. Instead of starting with a blank canvas as with a new build, you’re working with a story already embedded in the structure. On top of that, you’re also able to reclaim the VAT on the materials used in the conversion.
Depending on how you manage your conversion and how hands on you wish to be, will depend on the size of your VAT Reclaim. You can employ one main contractor to do all the works, or you can employ various trades to work within the property or you can be very hands on doing most of the works yourselves. This is a matter of budget and personal preference.
The HMRC 431 Self builders Scheme enables self-builders and converters to reclaim the VAT on the materials and, in the case of a conversion, the labour.
The 5% VAT rate is used when you are carrying out the conversion of a non-domestic property (barn, chapel, industrial unit or other business premises) and turning it into your new home. It is also used for properties that have been empty for 10+ years.
Your builder, if they are a VAT registered business, will purchase the materials from their suppliers. They will be charged the standard VAT rate, which they reclaim through their VAT return. In turn, they’ll invoice you their agreed charges for labour and materials at the reduced rate of 5%. The invoice they issue will show their details: name, address, contact details (Company Number if they are a Limited Company) and their VAT Registration Number. It should also show the materials and labour used including quantities and cost.
The following are not VAT invoices and cannot be used in the claim: Pro-forma invoices, Invoices that state ‘this is not a tax invoice’, Statements, Delivery notes, Orders, Letters, Emails or other correspondence.
If you have trades people that you want to use, but they are not VAT registered, then you need to ensure that you purchase the materials for them to install. You can then reclaim the VAT included from your supplier’s invoice.
If you are going to be more hands on, then you will be purchasing materials mostly from a builder’s merchants. They will issue you with a VAT invoice through their accounting system, which you will include in your reclaim. An invoice produced from a till is also acceptable to HMRC for your claim. They will charge you the standard 20% VAT rate.
If you are using a small supplier/tradesperson, ensure that they are VAT registered.
A conversion VAT reclaim is therefore made up of the 5%’s from your trades for the supply and installing and the 20%’s from your materials only suppliers.