Is your project eligible for the VAT DIY Housebuilder Scheme?

The Government has released updated guidance on what items you can or cannot claim a VAT refund for under the DIY Housebuilder Scheme.

Here Gemma McCaldon-Gower explains what the DIY Housebuilder Scheme is, what projects are eligible and how to make a claim.

What is the DIY Housebuilder Scheme?

The scheme puts DIY housebuilders in a similar VAT position to a person who buys a zero-rated house built by a property developer. It enables DIY housebuilders and converters to reclaim VAT in specific types of building projects.  Only certain projects apply and there are several conditions which must be met, ultimately to ensure that individuals are acting in a non-business capacity.

Whilst the wording ‘housebuilder’ may be interpreted that you need to do the work yourself, this isn’t the case, simply commissioning the work satisfies the criteria to apply.

Who can make a claim?

You can apply for a VAT refund on building materials and services if you are:

• building a new home in which you will live
• converting a building into a home
• building a non-profit communal residence, for example a hospice
• building certain types of property for use by a charity

Eligibility

New homes

The house must:

• be separate and self-contained
• be for you or your family to live or holiday in
• not be for business purposes (although you can use one room as a work from home office)
• not be prevented from sale independently to another building by planning permission or similar, for example a ‘granny’ annexe

A claim may also be made for garages built at the same time as the house and to be used with the house.

Contractors working on brand new residential buildings should zero rate their supplies to you, so you won’t pay any VAT on these.

Conversions

The building being converted must usually be a non-residential building such as a barn conversion or converting an office to house. Residential buildings qualify if they haven’t been lived in for at least 10 years.

You may claim a refund for builders’ work on a conversion of non-residential building into home. These supplies will be charged at the reduced rate of 5% for conversion works.  If the standard rate of 20% is charged incorrectly, you will not be able to claim the standard rated amount. The correct course of action would be to approach the supplier to issue a credit note and re-issue showing 5% VAT.  Care should be taken that the contractor understands the VAT rules for conversions as these can be complex.

Communal and charity buildings

You may get a VAT refund if the building is for one of the following purposes:

• non-business – you can’t charge a fee for the use of the building
• charitable, for example a hospice
• residential, for example a children’s home

What can you claim on?

There is a comprehensive list (updated on 11 October) on the Government website to help you identify the goods (building materials) and services which are eligible for a VAT refund, which you can find here.

Even if you are familiar with the scheme, it’s worth revisiting this list as there have been some changes. For example, window blinds and shutters now qualify for recovery under the scheme, whereas previously they didn’t.

What doesn’t qualify

You cannot get a VAT refund for:

• building projects outside the UK
• materials or services that do not have any VAT – for example, they were zero-rated or exempt
• professional or supervisory fees – for example, architects or surveyors
• hiring machinery or equipment
• buildings for business purposes
• buildings that cannot be sold or used separately from another property because of a planning permission condition
• fitted furniture, some electrical and gas appliances, carpets or garden ornaments

How to claim

If you wish to claim a VAT refund on either a new build or a conversion, once the project is complete and you have your certificate of completion or equivalent from the local authority, you are able to submit your reclaim to HMRC.

This must be done within three months from the date of completion, and currently, the rule has been that only one claim per project can be submitted.

Will multiple claims be permitted?

The ‘one claim’ rule has recently been tested in the case of Andrew Ellis and Jane Bromley [2021]. Here, the DIY housebuilder constructed a house over a period of five years. To aid cash flow, an initial claim was made, followed by a second two years later.

The First Tier Tribunal found that HMRC’s rule that only one claim could be made under the DIY housebuilder scheme was ‘ultra vires’ and that multiple claims should be permitted.

If HMRC take the decision on board, and change their policy, it will be very good news for new claimants as historically users of the scheme have often waited a number of years for a house to be built and therefore carried the burden of VAT cost and the negative impact on cashflow until the end of the project.

This case indicated that it is possible to make claims as the project progresses rather than having to wait until completion.

We look forward to comment/clarification from HMRC following this recent decision.

Maintain good records

All VAT reclaimed must be incurred correctly and supported by relevant VAT invoices, it’s important to remember that the rates of VAT depend upon the nature of the cost, and the type of project. HMRC will not refund VAT if it has been incorrectly charged.

Keeping accurate records at every stage of the project is the key to making a successful claim – ensure you retain all invoices including those with eligible and non-eligible items as the VAT on eligible items on these invoices can still be reclaimed.

HMRC will expect to see original invoices with the full details about the work undertaken, with email orders/ receipts not sufficient and they must be addressed to you, not your contractor or tradesperson – don’t use their trade account.

HMRC examine every claim closely and often query them, so it pays to ensure that the claim is as accurate as possible first time, and that documentation and records are kept.  HM Revenue & Customs will refuse to repay the claim if any of the conditions are not satisfied and may seek to apply penalties if the claim includes items which are not eligible – therefore it’s key to make sure you get it right.

If you would like advice on or assistance with making a claim through this scheme or on any other VAT-related matters contact Gemma McCaldon-Gower, VAT Director at Cowgills, Chartered Accountants and Business Advisors.