There is no doubt that we all want to save money where we can, for self builders and renovators the VAT reclaim scheme is a way to reclaim cash on a project. This can represent a significant part of a self build budget and this is your entitlement in law. Our close involvement with a large range of self build projects through material supply means we have a good idea of how this affects many self builders so we asked Edward Rubie an experienced VAT reclaim specialist and erstwhile quantity surveyor and self builder to help us create a list of observations, tips and ‘must have advice’ for our customers. Hopefully this will help simplify a complicated process which will be new to many.
HMRC report’s* suggest 35% of self-builders do not complete a VAT reclaim indicating that the total number of self-build completions during 2013 was more than 12,000. That’s 4,200 self builders missing out on reclaiming their own cash.
Research also shows that the average reclaim value is around £8,000 so by doing a simple sum that works out at around £33 million of unclaimed VAT per year.
The HMRC VAT Refund Scheme – a brief explanation
The Value Added Tax paid by ‘Self Builders’ for the materials used in the construction of a new dwelling, or creation of a new dwelling by conversion is normally reclaimable from HM Revenue & Customs (HMRC) who administer the ‘self build’ VAT scheme. The Refund Scheme puts DIY builders and converters in a broadly similar position to a developer selling a zero rated property.
You cannot claim as the work goes along – you have to wait until your build is complete. Therefore, it is advisable that you not only make a suitable allowance within your cash flow to cover VAT, but also keep accurate records as your project progresses. This way you can submit your claim as soon as the build is complete.
You can only make one claim to recover the VAT and it must be submitted to HMRC within three months of completion. Before making a claim, you should ensure your paperwork is in the right place and that you have obtained evidence of completion.
Because most self builds are a mixture of contractor supplied and self purchased materials make sure your contractors see the VAT Notice 708: Buildings and Construction, a certificate which explains to them what VAT to charge (or not) and how to claim it back through their own returns. Don’t pay VAT in error you can’t get it back!
What a 708 notice is about? This notice explains:
- when building work can be zero-rated or reduced-rated at 5%
- when building materials can be zero-rated or reduced-rated at 5%
- when the sale, or long lease, in a building is zero-rated
- when developers are ‘blocked’ from deducting input tax on goods that are not building materials
- when a builder or developer needs to have a certificate from his customer, confirming that the building concerned is intended to be used for a purpose that attracts the zero or reduced rate
- when a customer can issue that certificate to a builder or developer
- what happens when a certificated building is no longer used for the purpose that attracted the zero rate, the use for that purpose decreases or the building is disposed of
- the special time of supply rules for builders
- when a business, on using its own labour to carry out building work on a building or civil engineering structure that it occupies or uses, must account for a self-supply charge
How and when?
The claim has to be presented in the format set out by HMRC who issue a claim pack for submission at the end of the project. HMRC will accept a certificate or letter of completion from the local authorities, for Building Regulations purposes for example. A valuation rating or Council Tax assessment would also suffice. Banks and Building societies are also able to provide you with a completion certificate – they will be familiar with this process.
Supporting evidence has to be scheduled and submitted with the claim.
The self builder checklist – facts, tips, and comments to help you get the maximum reclaim
Listed below are a series of checklists that every self builder, renovator or developer should read, the best piece of advice is ‘get organised’ and ‘keep good records’
- Only VAT you pay on goods and materials that are incorporated in the building and its site can be claimed.
- Only one claim is allowed, normally after completion & within a three month period.
- Only the correctly charged rate of VAT can be reclaimed.
- Some services cannot be reclaimed whilst others should be zero rated to you.
- There are restrictions on what can be claimed. Plant, tools, carpets, most appliances and furniture are excluded. Guidance is given in Notice 719. (See point below)
- You cannot claim back VAT for professional services, e.g. architects, engineers, surveyors and planning fees.
- Knowledge of the current regulations is essential for obtaining the maximum refund.
- Special clauses apply to conversions and work to listed buildings.
Examples of What You Can and Can’t Claim:
YES: Fitted kitchen units, wood flooring,fitted bedroom furniture, burglar alarms, paint, solar panels.
NO: Free standing kitchen units,carpets, design fees, plant hire, electrical appliances, tools.
Services provided by VAT registered contractors
- Contractor’s work on new build projects should be zero rated VAT
- Contractor’s work on conversions should be charged at the reduced 5% VAT rate.
- Contractor’s work on listed conversions should be zero rated VAT.
Services provided by contractors who are not VAT registered
- The contractor will pass on the VAT he has paid on the materials he has bought, you cannot reclaim this. Try to buy the materials yourself.
Lump sum quotations and charges
- Always make sure that you have schedules and descriptions to show what is involved.
Transport or Delivery
- Transport and haulage charges are not refundable, however, delivery charges are allowed.
- Whilst plant hire charges are excluded from the claim, where an operator is provided by a VAT registered contractor the charge should be in accordance with the rules for service providers (See point above), this may result in lower final cost.
Moving in before completion
- This is normal, keep a copy of the first Council Tax assessment/valuation as the occupation date is important. You don’t have to do all the work yourself and you don’t have to live in the completed property. However, be aware there may be capital gains tax implications.
How long before the refund is paid?
- HMRC aim to acknowledge receipt of a claim within 10 working days and normally state the expected time they require for processing.
Problems with overcharging:
- Do not wait until your project is finished before ensuring that you have been charged the correct rate of VAT. A VAT registered trader’s time limit to correct liability is restricted to 3 years from the time of supply.
You will need to provide the following information for claim preparation:
Keep a simple spread sheet that tracks the date of purchase, what was bought, from whom and for how much, alongside a system of filing the original receipts and invoices, this will be all that is needed to ensure you do not miss out on any refund of VAT that is owed to you. In addition you should keep….
- Copies of both the planning permission and the approved plans.
- Evidence that the house is complete.
- The original invoices including those where VAT is not shown separately. All invoices must include the suppliers VAT registration number.
- In some cases specification details will be required for submission with the claim.
- Occasions where VAT has been charged in error.
- A narrative if the claim is made more than three months after the building was completed.
Other areas where advice is most commonly sought
- Transport charges, the use of plant and lump sum quotations.
- What to do when contractors who have charged VAT at an incorrect rate.
- Comment on a draft claim prior to submission.
- Advice during construction on obtaining maximum VAT refund.
- Advice on allowable items and documentation.
- Advising on the best time to submit your claim.
Specific additional circumstances where VAT advice may be required
- Renovation of some abandoned properties qualifies for VAT refunds.
- Some ‘Approved alterations’ to listed buildings can be zero rated by VAT registered contractors.
- Changing the number of dwellings in a property can qualify for reduced rate VAT by registered contractors.
You can read more by following this link https://www.gov.uk/vat-building-new-home
If you would like help with your self build VAT reclaim, please contact us using this link Help with my VAT reclaim