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Submit plansWe are replacing an existing dwelling with a new self build and also building a separate annexe with full planning permission to live in whilst building the new dwelling. The annexe will remain as ancillary to the main residence. Can we claim the VAT back on the annexe as well as the main house and do we need to notify HMRC before we commence the build?
Unfortunately, you will be unable to reclaim the VAT charged on the materials for the annexe part of your project, as per the guidance set out in paragraph 3.2.2 of VAT Notice 708. This gives common examples of work that cannot be zero-rated, which includes the construction of a granny annexe that cannot be used, or disposed of, separately from a main house. This is because an annexe doesn’t mean the conditions of ‘a building designed as a dwelling’ in full, the definition of which is set out in paragraph 14.2 of VAT Notice 708.
To answer your second question, HMRC does not have a system in place to inform them of your intention to carry out a self build or conversion. HMRC only needs to know that works have been carried out in accordance with your planning consent when you submit your VAT reclaim. It’s worth noting that you should not register for VAT as a business if you are undertaking a self build project, as the HMRC 431NB (new build) and 431C (conversion) schemes were introduced specifically for people creating a home for themselves to be able to reclaim the VAT they are charged.
Kathy (VAT Reclaims expert)