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Q&As
VAT on new construction
I own a bungalow, which I’m considering demolishing down to ground floor level to make way for a completely new superstructure on top. Would this be treated as a new build for VAT purposes? Specifically, would I be able to reclaim VAT on goods and services connected with the rebuild?
One Answer
We’re seeing a lot of these types of projects, which offer a great route to getting the space you want. However, the DIY Housebuilders Scheme VAT regulations – which effectively put self builders on a level playing field with someone buying a zero-rated house from a big developer – state that if the new building is constructed from scratch, any pre-existing structure must be demolished completely to ground level. Basements, cellars and the ground floor slab, however, may be retained.
There are a few exceptions. If you are in an AONB or a conservation area, your local planning department may insist that you keep one facade of a pre-existing building (or possibly two facades, if you are on a corner plot). This is acceptable to HMRC for the VAT reclaim.
To qualify, your planning application will need to state that the project is a new build or a new dwelling. Remodelling a current property will not meet HMRC’s guidelines. Whether you have a claim at the end of the project will depend on how you manage the construction and procurement. If you’re purchasing materials yourself, you’ll be doing so at the standard VAT rate, most of which would be reclaimable.
If your project does qualify, ensure that your main contractor and/or trades quoteand invoice you at the zero rate VAT for both materials and labour. Please note that incorrect VAT charged by your trades cannot be reclaimed from HMRC. You also cannot reclaim VAT charged on services ‒ such as architects, surveyors, structural engineers etc ‒ as the scheme only applies to materials directly incorporated into the build.