Building a new home and VAT – a guide for DIY/self-builders

If you’ve always dreamt of building your own dream home, but you’re not sure whether you can afford to (especially if VAT at 20% is payable on build costs), then this guide will help you identify the key aspects that you need to consider from a VAT, budgeting, and record-keeping perspective to ensure your project is undertaken as VAT efficiently as possible.

Key VAT considerations for self-builders

We are often asked by clients who are building their own homes to live in (and often their architects as well), about the VAT aspects of DIY house building. By far the most important thing is to be organised, and that means keeping great spreadsheets, requesting VAT invoices for all relevant costs, and to ensure that any builders involved are applying the correct rate of VAT to the construction services being provided.

In that respect, the HMRC ‘DIY Housebuilders’ scheme only allows VAT recovery by self-builders if it was correctly charged by the contractor or merchant in the first instance. Any construction services (made ‘in the course of constructing’ a new dwelling), should be zero rated for VAT, along with goods supplied ‘in the course of construction’ that are incorporated into the fabric of the dwelling.

This means that the main VAT costs for self-builders will be incurred on goods/materials purchased directly from builders’s merchants.

How does the VAT reclaim scheme work?

You’ll be charged VAT by the merchant on goods (bricks, timber etc) purchased for incorporation into the new home, this is exactly the sort of VAT that you’ll include on a DIY reclaim.

One of the things that you’ll always pay VAT on at 20% are professional fees, so things like architects and engineers will always charge you 20%, but unfortunately, these are not included in the refund scheme.

What is the deadline for reclaiming VAT on your self-build project?

One of the key features of the scheme is the deadline for making the claim. You currently get three months from the date of the practical completion certificate issued by the local authority, and as HMRC are strict with that deadline, it’s essential the claim is made on time, which is why it’s so important to ensure that you’re keeping records as you go along, so that in the end analysis you can make the claim as expediently as possible.

What other records and documents do I need to make a claim?

To make a reclaim, you’ll need a copy of the planning permission, a copy of the local authority-approved plans, certificate of practical completion and details of all costs incurred (including original invoices & receipts) in order to complete the HMRC reclaim form.

Please note that the information in this guide is of a general nature and seeks to highlight some of the issues which could be affecting you and/or your business, including changes to financial regulation and legislation. Readers should not rely on this information without seeking professional advice on its application in their circumstances.

Any questions about saving VAT on your self-build project?

So, if you’re in the middle of building your own dream home, or you’re thinking about it, or have any questions or comments about the VAT refund scheme, feel free to contact us – the Henderson Loggie VAT advisory team.

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