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How You Can Reclaim VAT When Building Your Own Home – The DIY Housebuilders Scheme

11 October 2022
Christie Inns
Property Owners, Building & Construction, Reducing Tax, Property Investors & Developers

For many people building their perfect home is just a dream. However over recent years we are seeing more and more cases of individuals looking to do just that.

Designing and then building the perfect home requires significant planning and there are often lots of hoops to jump through. But there is one issue which you should consider and offers a huge opportunity for a financial saving – specifically any VAT incurred on the build.

The first point to note is that when a building company carries out any building work on a brand new home then usually this is a zero-rated supply for VAT (i.e. no VAT is charged on their work) provided an element of the work includes labour. The building company is likely to incur VAT on material costs, equipment hire and potentially certain professional advisers such as architects and chartered surveyors. The building company will be able to recover all the VAT on the related expenditure and charge the onward supply of the build of the house to you with no VAT.

However what happens if you’re a tradesman who wants to build yourself a new home, or an ambitious DIY-er who wants to carry out a lot of the build themselves? You would potentially be at a disadvantage if say you bought the materials directly yourself.

This is where the DIY Housebuilders Scheme comes into play to put private builders on a more equal footing with builders and developers and allow the reclaim of (most) of the VAT paid on expenses.

Who can make a claim under the scheme?

The scheme is open to any person who constructs a dwelling for a non-business purpose. In most cases it is to use as their own residence.

However the scheme is wider than the title may suggest.

‘Housebuilders’ may lead you to believe that a brand-new home needs to be constructed from scratch. However the scheme is also open to any individual who:

  • Converts any non-residential building into a dwelling for use as their own home. For example this could be an office building, or even a church conversion.
  • Renovates a residential building that has stood empty for more than ten years for private use.

Construction of a new dwelling usually means new from the ground up, where no more than a slab at ground level is retained. However, if it is requirements of planning consent you can claim  where a single façade remains from a previous building not completely demolished .

It also does not matter how much of the work you do yourself, or pay a building contractor to do. You can make a claim either way as long as the building project fulfils the above criteria.

Deadlines for making a claim

It is important to note that you must make your claim within 3 months of completing the work.

‘Completion’ is not defined in the DIY housebuilders scheme and it can therefore be unclear for which point in time this relates to.

For the purposes of the claim, completion refers to when the property becomes habitable, this is the earlier of the completion certificate or when you move into the property.

If it can be proven that the property was not fit for purpose when you moved in i.e no bathroom etc but you had to move in due to exceptional circumstances then you may be able to extend the claim beyond the 3 month rule.

When can the DIY Housebuilders scheme NOT be used?

Any subsequent business use of the new home will preclude the making of a claim. This includes sale or letting of the property or use as let holiday accommodation. If you were to construct or convert a holiday home entirely for private purposes, which would never be let out, you could claim for this under the DIY scheme.

There are other situations where the scheme will be disapplied so always seek professional advice.

Pitfalls – what can and what can’t VAT be reclaimed on?

As stated earlier a building company carrying out any work on a new build will usually zero rated their supply. So if you are engaging a builder to help you, they should be charging you 0% VAT instead of 20% VAT. Similarly, building services provided when converting a non-residential building into a dwelling are reduced rated for VAT. So your builder should be charging you 5% VAT on conversions.

If your builder charges the wrong amount of VAT HMRC will not refund it and so it cannot be claimed under the DIY scheme. In this case, HMRC insist you approach your builder and get it corrected with them.

You also cannot reclaim VAT on any services paid for (e.g. architects, surveyors, skip hire or scaffold hire) nor can you claim for any consumable items (e.g. sandpaper or tools).

The rules for making a claim are detailed and the government has provided a lot of helpful information about claiming VAT on new house builds.

Making a DIY Housebuilders Scheme claim

HMRC stipulates that you can only claim once building work has finished. There is also a time limit of three months from the date of completion to make a VAT reclaim under the scheme. This is usually from the date of the Building Regulations Completion Certificate. However if this certificate is delayed for any reason, it is from the date of completion of the actual works.

When making a claim it is essential that you keep all original invoices (addressed to the housebuilder). You should also keep a copy of the building regulation completion certificate, building plans and planning permission and send them off with the claim. For conversions, you must provide proof of vacancy for at least 10 years.

Next Steps

If you are a client of Friend & Grant please call us to discuss your DIY Housebuilders Scheme claim. If you are not a client of our firm but are looking for advisors who specialise in dealing with property then why not find out more about how we can help you by visiting our Property Investors & Developers page or give us a call to arrange a discovery meeting.

The content in this blog is correct as at 11 October 2022 See terms and conditions.

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