Since our last blog we’ve been very busy working on a number of new feasibility studies for residential projects ranging from loft conversions to new one-off homes. Clients often ask us at the outset of a project if VAT is payable on both our work and the construction and material cost of the build. VAT rates for building work is confusing and there are a number of variables as to whether or not VAT is payable on your project.
In terms of architect’s fees, VAT is always payable on any supervisory or professional services, so if your architect is registered for VAT, this will need to be added to their fees.
In terms of building work there are a number of scenarios to consider.
If you are constructing a new independent dwelling that you intend to live in (ie. not developing a property as a business venture), then you can reclaim the VAT payable on certain elements of the build. Your builders services should be zero rated for VAT, and you can reclaim VAT paid on certain materials bought for the construction. The materials must be ‘incorporated into the building’ so, for example, you would need tools to remove again and would leave a mess. So bricks in the outer wall would be included, but not a free standing wardrobe. There is a description of what is/isn’t included as building material here: https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction#the-vat-meaning-of-building-materials
If you are reclaiming VAT for a new build property, remember to keep all your invoices, you have one hit to reclaim all your VAT and this has to be submitted within 3 months of completing your project. Have a look at the form on the HMRC website for how to claim and the notes at the end of the form to confirm what you can/can’t claim for, and how to claim: http://www.hmrc.gov.uk/forms/vat431nb.pdf
If you are converting a property, for example this project where our clients were converting a former office into a home, the building must never have been used as a residence, or not been used for the last 10 years as a home. The rules are slightly different for what you can reclaim VAT on, again the form on the HMRC website has all the details: http://www.hmrc.gov.uk/forms/vat431c.pdf
If you are renovating a property, such as our project currently on site in Derbyshire for renovation of a previously uninhabited bungalow, you may be able to claim reduced rate VAT if the property can be shown to have been vacant for more than 2 years and the work is undertaken by a contractor able to offer the reduced rate. If the property can be shown to have been vacant for more than 10 years the work is considered more as a conversion for which VAT may be reclaimed as above. The homebuilding and renovating advice guide gives a good description of this: http://www.homebuilding.co.uk/advice/beginners/finance/different-vat-concessions
Unfortunately, if you are extending or renovating an existing property, such as one of our Directors, Rachel, here on site at High Matlock Road, there is no avoiding VAT on general work. However, some materials used to improve energy efficiency may qualify for reduced rate VAT so it is always worth checking.
This is just a brief overview of some of the VAT scenarios in self build residential projects. In all projects you should seek advice early on to establish whether VAT is applicable to both the building work and materials that you may be purchasing for the project. Always check with a professional or the VAT helpline to ensure you are paying the correct amount of VAT before you start work.
Here you can find tips for ways of saving on VAT from homebuilding and renovation magazine: http://www.homebuilding.co.uk/advice/beginners/finance/how-save-money-wasted-vat
If you’re browsing for ideas over the Christmas holidays for how to extend your home, or build a new home, perhaps to give you more space for a bigger Christmas tree, make sure you’re clear on your budget from the start, know where you stand with VAT, and get lots of inspiration.
Check out our new Pinterest board for a few ideas… Thread_Pins
…and have a very Happy Christmas!