If you build your own home, there is a scheme available which permits you to recover certain VAT incurred on the construction. This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim. As always with VAT, there are traps and deadlines, so here I have set out the Top Ten Tips.
An in-depth article on the DIY Housebuilders’ Scheme here
The following are bullet points to bear in mind if you are building your own house, or advising someone who is:
- Understand HMRC definitions early in your planning
Budgeting plays an important part in any building project. Whether VAT you incur may be reclaimed is an important element. In order to establish this, it is essential that your plans meet the definitions for ‘new residential dwelling’ or ‘qualifying conversion’. This will help ensure that your planning application provides the best position for a successful claim. One point to bear in mind, and which I have found often produces difficulties, is the requirement for the development to be capable of separate (from an existing property) disposal.
- Do I have to live in the property when complete?
You are permitted to build the property for another relative to live in. The key point is that it will become someone’s home and not sold or rented to a third party. Therefore, you can complete the build and obtain invoices in your name, even if the property is for your elderly mother to live in. However, it is not usually possible to claim on a granny annexe built in your garden (as above, they are usually not capable of being disposed of independently to the house).
- Contractors
Despite the name of the scheme, you are able to use contractors to undertake the work for you. The only difference here will be the VAT rate on their services will vary depending on the nature of the works and materials provided.
- What can you claim?
A valid claim can be made on any building materials you purchase and use on the build project. Also, services of conversion charged at the reduced rate can be recovered. However, input tax on professional services such as architect’s fees cannot be recovered.
- Get the VAT rate right
It is crucial to receive goods and services at the correct rate of VAT. Services provided on a new construction of a new dwelling will qualify for the zero rate, whereas the reduced rate of 5% will apply for qualifying conversions. If your contractor has charged you 20% where the reduced rate should have been applied, HMRC refuse to refund the VAT and will advise you go back to your supplier to get the error corrected. This is sometimes a problem if your contractor has gone ‘bust’ in the meantime or becomes belligerent. Best to agree the correct VAT treatment up front.
- Aid your cash flow
If you wish to purchase goods yourself, it will be beneficial to ask your contractor to buy the goods and combine the value of these with his services of construction. I this way, standard rated goods become zero rated in a new build. If you incur the VAT on goods, you will have to wait until the end of the project to claim it from HMRC.
- Claim on time
The claim form must be submitted within three months of completion of the build, usually this is when the certificate of practical completion is issued, or the building is inhabited. although it can be earlier if the certificate is delayed.
- Use the right form
HMRC publish the forms on their website
Using the correct forms will help avoid delays and errors.
- Send everything Recorded Delivery
You are required to send original invoices with the claim. Therefore, take copies of all documents and send the claim by recorded delivery. Unfortunately, experience insists that documents are lost…
- Seek Advice
If you are in any doubt, please contact me. Mistakes can be costly, and you only get one chance to make the claim. Oh, and don’t forget that this is VAT, so any errors in a claim may be liable to penalties.