Andrew Jones explains how to reclaim VAT on a self build home or conversion as well as sharing some common pitfalls to avoid.
Interview with Andrew Jones
Andrew Jones has worked in construction since leaving school. Initially he was building and selling bungalows. However, as the housing market cooled he saw an opportunity to change direction slightly and started working for a local builders merchant. Their clientele were mainly self-builders and some years later one of the customers asked Andrew for a favour… seeing him as a diligent and organised individual he wondered if he could help him file a VAT reclaim. When word got out other people started knocking on his door and soon he realised this had potential to be a business. Now Andrew Jones (The VAT man) has been running for over a decade and he has built up a team around him.
Value Added Tax (VAT) is built into many purchases
When the UK joined the EU in 1972 part of the qualifying criteria was to have a Value Added Tax (VAT) system in place. VAT is a tax on goods and services whereby money is passed onto the government. Sometimes you may not even realise you're paying it!
Andrew says a lot of everyday goods are subject to VAT. He shares an example of shopping in a supermarket.
If you spend £100 in Tesco, probably 50% of it was subject to VAT, which currently in the UK is 20%. So out of that £50 HMRC would be passed £10 of VAT.
In some instances, such as gas or electricity, there may be a reduced rate of VAT.
There is an incentive to create a new dwelling
When it comes to housing in the UK, supply does not meet demand and so the government is keen to encourage more new homes to be built. One way they do this is with the DIY housebuilder scheme.
You are eligible for a VAT refund if you are undertaking one of two projects.
The scheme applies to new builds and conversions
If you create a new dwelling, and it's for you or a direct family member, then you should qualify for this scheme (and reclaim the VAT).
A reclaim system makes it easier for retailers
If you bought a new home directly from a developer you would not pay VAT. However, it gets more complicated if you plan to build your own home.
For example, as builders merchants charge their customers VAT you couldn't just wander in and say you were exempt! It would be a logistical nightmare for them and open to abuse. Instead, as a self-builder, you reclaim your VAT from HMRC at the end of the process.
You must make sure you're using the right scheme
The scheme is split into two parts and it's important to claim under the right one!
431NB – for new builds
431C – for conversions
While it may seem like a clear distinction and that nobody could ever go wrong there are some tricky situations.
Refer to the wording of your planning if you're unsure
Andrew shares an example of someone who is tackling a barn conversion but is also extending. There could be quite a large new build element of this project though.
I quite often hear it said: “Oh yeah, I'm doing a new build barn conversion.” But there's no such thing. It has to be a new build or a conversion. So the way that is decided the majority of the time is by the wording of your planning.
The contractor on a new build should not be charging VAT
If you're using a main contractor on a new build project then materials and labour should be charged without VAT. Andrew gives an example.
Off the top of my head, the ground worker, your SIPs company… the roofing contractor, the bricklayer who's putting the outside skin up, the window company, then we get inside the carpenter, the plasterer, the electrician, the plumber, the granite worktop company, then we get the painter and decorator, then we get outside, the landscaper, the driveway, the tarmacadam company, all these people, none of them should be charging you any VAT!
So it's a project price.
If the contractor isn't VAT registered you should buy the materials
Don't be put off if your contractor is not VAT registered. However in this instance you should be purchasing all the materials.
If the contractor did buy the materials there would be no way of passing on the VAT saving to you.
Paying contractors VAT in the first instance is a disaster. Irrespective of Peter the plumber telling you, “I'll give you a VAT receipt and you claim it back.” It won't happen. The rules are they should not be charging you with the VAT.
Retain all your invoices as you go through the project
If you are buying the materials then you pay VAT as normal as you buy all your supplies but it is critical that you retain all the invoices for the reclaim at the end of the project. Ideally this would happen when Building Control sign off the building. Then you will have 6 months to submit your claim (this change was introduced in December 2023).
If contractors say they have to charge VAT, get them to speak to their accountants
Some of the tradespeople you hire may think they have to charge VAT, but this is not the case. So before you sign them up, give them an opportunity to chat it through with their accountant.
A good accountant should know or be able to find out about this scheme. Andrew says there have been times when he has had to call accountants to bring them up to speed.
Contractors want to charge VAT to make their lives easier!
The reason some tradespeople may be keen to charge VAT is that if they didn't charge VAT where it should have been charged, they would be liable to pay the shortfall. So by charging everyone VAT by default they are never going to run into that problem.
Conversions are also 0% VAT but you get there in a different way
With a conversion, when the contractor comes to site they should be charging you 5% VAT.
You may buy your materials in the same way with the VAT included (currently at 20%) but collecting all your VAT invoices.
Then when it comes to your reclaim, you get your 5% back that you paid the contractor and the 20% you paid for materials.
So overall a conversion is the same as a new build in that by the end you will have paid 0% VAT.
Invoices must have your name on it
When it comes to the invoices there are a few things to note:
- They must be in your name or your partners, but not in the name of the builder
- They could also be VAT invoices with no name on
- The invoices must be originals, not photocopies
- They must be VAT invoices, not order confirmations or priced delivery notes or pro formas
A problem occurs when your builder presents you with invoices, and says, “Oh, yeah, you weren't here, I went and bought this for you.” Or when a builder says to you, “Oh, you don't have an account at X, Y, Z. I'll go down… book it to me, it'll be fine.”
If you do end up having invoices with the builder's name on, HMRC will not reimburse you for these.
Be diligent and put invoices in a safe place as you go through the project
Andrew advises putting all your invoices in a big, waterproof plastic box as you receive them.
In today's world invoices may be emailed to you so print them out straightaway and add them to your box.
Think of each one of these invoices as a £50 note! In other words really look after them.
Once your house gets signed off by Building Control the clock starts counting down
In an ideal scenario, once Building Control has signed off your house you would submit your reclaim.
You can only do one return and you only have 6 months in which to do this. The clock will start ticking after your house has been signed off.
It is possible to do a reclaim before the building gets signed off
If you run into financial difficulty and you are forced to live in an unfinished house there is an option to claim before sign off. This may provide you with a little more cash to move the project on.
In England and Wales, there is a authority which band your property for council tax. HMRC will accept that as one of your options in order to be able to submit the VAT reclaim.
Certain goods and services are not included in the scheme
Andrew says there are some items that you can't claim for. Some of these might be obvious because they could be removed (white goods, tools, equipment, garden ornaments, etc.). Other items are not so obvious.
When you go to buy your kitchen, first of all you have the hurdle of, are they supplying and fitting it? Or am I buying it? So is it zero rated or do I pay the VAT and claim it back? Then you have the hurdle of not everything in the kitchen qualifies for VAT exemption, or discounted VAT if it's a conversion. The items in the kitchen that do not qualify as a rule without going into any great detail, other white goods, the fridge, the freezer, the cooker, and so forth.
Large kitchen retailers such as Wren or Howdens provide complete breakdowns of every item they're supplying but it's important to get this from smaller companies too because HMRC will want to make sure all items are VAT exempt.
Carpet is not included!
There are a few bizarre things on the list of items that you cannot claim for. Although nearly all floor coverings are included, carpet is not. Perhaps this is to do with people removing the carpet when they moved house back in the old days.
We'll say a scenario here of floor covering where you've got carpets and we'll say laminate flooring. The bill's £3000 plus VAT but they've supplied and fitted it. So the carpet element It would be VATable, as would the labour for laying the carpet, yet the laminate floor and the labour for laying the laminate floor would be VAT exempt, because they're supplying and fitting it, but not all of it because the carpet doesn't qualify!
If you're hiring someone to file your reclaim, make sure it's a specialist
Andrew says he outsources his regular tax return to people who do it every day.
So if you choose to hire a tax adviser to submit this claim on your behalf, make sure it is someone who does this regularly. Going to the accountant on the high street would probably not be a good option unless they were really familiar with these claims.
Find out more
Visit Andrew Jones' website – the VAT man
HMRC – DIY Housebuilder scheme
HMRC – VAT refunds for new builds
HMRC – VAT refunds for conversions
Join The Hub to access our in-depth video case study of Buckinghamshire Passivhaus, a PH15 build
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