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Although builders’ services in connection with the construction of a new dwelling are likely to be zero-rated, VAT will be incurred on any materials purchased directly by the owner. Where a non-residential building is converted into a dwelling, zero-rating is unlikely to be available and construction costs may carry VAT at 5%.
Under the DIY scheme, HMRC must refund VAT chargeable on the supply, acquisition or importation of any building materials used in connection with qualifying construction or conversion work. It should be noted that where VAT is charged incorrectly, such as VAT charged at 20% on constructing a new dwelling, this will not be recoverable.
The scheme can be used to reclaim VAT on eligible goods used to construct a new qualifying dwelling, communal residential building or charity building and eligible goods and services used to convert a non-residential building into a qualifying dwelling or communal residential building. The claim should be submitted to HMRC on the appropriate form, VAT431NB (for new-builds) and VAT431C (for conversions). The forms are available on HMRC’s website – www.gov.uk – and include useful guidance.
Common obstacles to a claim are that the property in question does not meet the definition of a ‘new’ build (where any part of an existing building is being retained) or the property is not a ‘dwelling’ because a covenant or similar restriction exists in relation to its separate use or disposal or the work was not covered by the correct planning consent.
Where the property is a conversion from a non-residential building, it must not have been used for non-residential purposes in the 10 years prior to the conversion. This is straightforward when a property has never been used for residential purposes, but if a property only qualifies as non-residential because it has not been used as a dwelling in the previous 10 years, this can be difficult to prove and it is important to begin gathering evidence at an early stage.
Cases are regularly heard by the VAT Tribunal in respect of DIY claims and it is important to consider HMRC’s guidance carefully before making a claim.
A claim can only be made for VAT on services relating to construction of the building or goods incorporated into the building. Common errors in claims include claiming VAT on: professional fees, hire of equipment, tools and cleaning materials, fitted furniture, such as wardrobes, and VAT charged incorrectly by contractors.
Claims must be submitted within a strict time limit of three months from the date of completion of the build. Only a single claim can be made for each project. This deadline is difficult to meet when combined with the other challenges a self-build or conversion offers. HMRC can impose penalties where an invalid claim is submitted or items are claimed in error. It is beneficial to seek professional assistance where there is doubt over the validity of all or part of the claim.
