VAT refunds on self-build new homes or non-residential conversions

If you are building a new home or converting a building into a place to live, whether you do the work yourself or have it done for you, you may be able to reclaim the VAT you pay on some of the building materials and conversion services you use.

When budgeting for your project, read this guide carefully. Your project may not qualify at all, or you may not be able to reclaim VAT on everything. In any case, some supplies or services by builders may already be zero-rated or at a reduced rate of VAT, so you might not get the saving you're expecting.

This guide explains what you can claim and the conditions you need to meet in order to do so.

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What projects does the refund scheme apply to?

Construction of a new dwelling

This refund scheme applies to the construction of a new dwelling - a place where someone is intending to live. It also applies to the conversion of a non-residential building into a dwelling. The works must be carried out in the UK - including the Isle of Man, but not the Channel Islands. The building must not be intended to be used for business purposes.

There are strict definitions for what 'construction of a new dwelling' means. In particular, it has to be self-contained accommodation - a 'granny annex' would not be eligible for relief.

Finishing a building

You can still make a claim if you add to or finish a partly completed new building, for example where you buy a shell from a developer and fit it out, or have it fitted out by a builder.

You cannot, however, claim for any extra work you do on a completed building bought from a builder or developer - such as adding a conservatory, patio, double-glazing, tiling, or a garage.

Conversions

Where the building is a conversion, it must be of a non-residential building. That means a building that has either never been lived in, or hasn't been lived in for the last ten years - not even on an occasional basis as a second home. Illegal occupation by squatters doesn't count, however, and you are allowed to live in the property while the work's being done, as long you move in after the work has started.

There are strict definitions for what constitutes a suitable residential conversion.

Communal buildings and charity buildings

Note that although the scheme doesn't apply to a building that's going to be used for business purposes, it may apply to the construction of a communal residential building - such as a new care home - or a charity building.

More about conversions of buildings into homes that qualify for relief in VAT431C

More about how you may be able to get the VAT back on the construction of care homes and charity buildings in VAT431NB

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Who can use the scheme?

Anyone who buys eligible goods for a project that qualifies for this relief may make a claim. It doesn't matter who actually does the work - you can use builders to do some or all of it for you.

Who can't claim?

You can't claim a VAT refund on your DIY building work if you are using the building for business purposes. So you can't claim, for example, if you:

  • are a speculative developer
  • are a landlord
  • run a bed and breakfast business
  • run a fee-paying care home
  • are a membership club or an association
  • run a fee-paying school

If you work from home - using one room as an office - then you can still make a claim.

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What goods and services can you claim for?

Goods

You can only claim for building materials. HM Revenue & Customs (HMRC) uses a strict definition for building materials. Building materials are incorporated into the building or conversion itself, or into the site, which means that you can't remove then without using tools and damaging the building and/or the goods themselves.

However, there are a number of exceptions. Items such as fitted furniture, some electrical and gas appliances, and carpets or garden ornaments do not count as building materials.

Purchases abroad

You can claim back the VAT paid on building materials bought in any member state of the EU. For the purposes of your claim, you should convert the amount of VAT you have been charged to sterling. You can also claim back the VAT paid on importing building materials into the EU. When making your claim you must provide evidence of the VAT paid, together with the originals of any shipping or transit documents showing the importation of the goods from abroad.

Services

If you are constructing a new building, then your builder's services should be zero-rated anyway. You won't pay any VAT on their bill.

If you are converting a non-residential building into a home, you can reclaim the VAT charged by your builder. For conversions, a builder can sometimes charge you a reduced rate instead of the standard rate of VAT.

You cannot reclaim VAT paid on any professional or supervisory services, like work carried out for you by architects or surveyors, or any other fees for management, consultancy, design and planning. Similarly, you cannot reclaim VAT paid on services such as the hire of plant, tools and equipment.

More about conversions of buildings into homes that qualify for relief in VAT431C

More about how you may be able to get the VAT back on the construction of care homes and charity buildings in VAT431NB

Find out what rates of VAT builders should charge on different types of work in VAT Notice 708

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How to make a claim

Timing

You can't claim as the work goes along - you have to wait until it's finished according to the original plans. If in doubt, you can wait until the local planning authority issues a certificate of completion.

You must make your claim within three months of completing your conversion or building work. If you can't, you must write to HMRC to explain the reason for the delay.

HMRC will acknowledge receipt of your claim by letter within ten working days and try to ask any questions they have about your claim at the same time. You should normally get your refund within 30 banking days of them receiving your claim.

VAT invoices

First, before you can make a claim, you need to make sure you have all the right paperwork in place. That means obtaining VAT invoices for everything, and they have to be correct. If you've been charged the wrong rate of VAT, then you can't claim. For example, if you find out you've been charged VAT in error for services that should have been zero-rated, you can't claim it back from HMRC. However, your builder may be able to obtain a VAT refund by adjusting his account with HMRC. But don't leave it too late. Your builder will have a limited amount of time to correct his VAT account with HMRC.He is likely to refuse to make a correction if it is out of time.

VAT invoices must show:

  • the supplier's VAT registration number
  • the quantity and description of the goods and/or services
  • your name and address if the value is more than £100
  • the price of each item

Making the claim

If you are constructing a new dwelling you must complete form VAT431NB to make your claim. If you are converting a building (that was previously non-residential) into a dwelling you must complete form VAT 431C to make your claim.

It's a lot easier to do this as you go along, so it makes sense to obtain the forms before you start work. See below for links to download these forms which are accompanied by guidance on how to complete them.

The notes explain the completion process on a step-by-step basis. They also tell you how to calculate your claim and what documents you will need to send in to support it.

You should keep a copy of your claim in case HMRC need to ask you any questions about it. You must send your completed claim to the address shown in the notes that accompany the form.

Evidence of completion

HMRC will accept any of these as evidence that the work is finished:

  • a certificate or letter of completion from the local authority, for Building Regulations purposes or otherwise
  • a habitation certificate or letter from the local authority - or in Scotland, a temporary certificate of habitation
  • a valuation rating or Council Tax assessment
  • a certificate from your bank or building society with the wording below

'This is to certify that the ...... Bank*/Society* released on ...... (date) the last instalment of its loan secured on the dwelling*/building* at ........... because it then regarded that building as complete.'

Download VAT431NB - VAT refunds for DIY VAT refunds for DIY housebuilders (Claim form and notes for new houses)

Download VAT431C How to claim a VAT refund for converting an existing building into a dwelling (Claim form and notes for conversions)

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Working out your claim

When you work out the total for your claim, you must take off any credits or discounts given by your supplier, such as for returned goods or bulk purchases.

If you've been charged VAT by your supplier, the invoice will normally show the amount of VAT separately. You'll need to check your invoices carefully for the amount of VAT you've been charged. The standard rate of VAT is 20 per cent but was 17.5 per cent for the period 1 January 2010 to 3 January 2011. This means you might be claiming back VAT at both rates.

Sometimes only the VAT-inclusive amount and the VAT rate will be shown on the invoice. These examples show you how to work out how much VAT is in a VAT-inclusive amount.

If the VAT you've been charged is 20 per cent and you've got a VAT-inclusive amount of £120:

  • take the VAT-inclusive price of £120 and divide it by 1.2 - this gives £100 which is the VAT-exclusive amount
  • take away the VAT-exclusive price from the VAT-inclusive price - that's £120 less £100
  • the result is the VAT amount of £20

If the VAT you've been charged is 17.5 per cent and you've got a VAT-inclusive amount of £117.50:

  • take the VAT-inclusive price of £117.50 and divide it by 1.175 - this gives £100 which is the VAT-exclusive amount
  • take away the VAT-exclusive price from the VAT-inclusive price - that's £117.50 less £100
  • the result is the VAT amount of £17.50

Where an invoice includes goods and services that you can't claim for, you must reduce your claim by an appropriate amount.

If you receive an all inclusive invoice from a contractor, you must be able to show that the amount of your claim is fair and reasonable, such as by using tendering, estimation or specification documents agreed with your contractor.

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