If you work in the construction industry or you’re thinking of building your own home, it’s important to understand the governments rules on VAT and whether or not you are eligible for any discounts on new builds.
Whether you’re developing a new build form scratch or converting a current property into a residential dwelling, labour is essentially zero rated, and you will be able to claim back some or even all of the VAT on the materials used in the build.
However, this rule doesn’t apply to all and it’s vital that you’re clear on what you can and cannot claim for before you get started in order to avoid disappointment if savings do not materialise to as much as you expected.
We’ve done the hard work for you and simplified the government’s rules below.
What Buildings Are Eligible For VAT Refunds?
You can apply for a VAT refund on building materials and labour if you are:
- Building a new home
The home must:
- be separate and self-contained
- be for you or your family to live or holiday in
- not be for business purposes (you can use one room as a work from home office)
Builders working on new buildings should be zero-rated meaning you won’t pay any VAT on their services.
- Converting a property into a home
- The building being converted must be a non-residential building. Residential buildings qualify if they haven’t been lived in for 10 years or more.
- You can claim a refund for builders’ work on a conversion of non-residential building into a home. For other conversions builders may charge a reduced VAT rate.
- Building a non-profit communal residence or charity building
You may get a VAT refund if the building is used for one of the following purposes:
- non-business related – 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 Counts As A New Build?
For work to be zero-rated for VAT on new builds, it needs to qualify as a genuinely new, self-contained house or flat. This means it must:
- be self-contained without any internal doors or connections to other houses or flats
- be used independently of any other property, including businesses
- be sold on its own
- have proper planning permission
- be completely to ground level with any existing buildings on the site demolished (unless you’re extending an existing building to create a new house or flat)
VAT For The Construction Industry
VAT for most work on houses and flats by tradesmen such as builders, plumbers, plasterers and carpenters is charged at the standard rate of 20% , however, there are exceptions in some cases.
Zero rate VAT applies to some types of work where VAT does not have to be charged at all. This only applies when:
- creating new builds, houses or flats
- labour for disabled people in their home
Reduced rate VAT may also apply to some work you do and this means you can charge a reduced rate of 5% for work such as the following:
- installing energy saving products and certain work for people over 60
- converting a building into a house or flats or from one residential use to another
- renovating an empty house or flat
- home improvements to a domestic property on the Isle of Man
For buildings that aren’t houses or flats, you may not have to charge VAT for some of the work you do on certain types of buildings. This includes:
- civil engineering work to develop a residential caravan park
- approved alterations and substantial reconstructions to protected buildings
- converting a non-residential building into a house or communal residential building for a housing association
- constructing certain buildings used by charities for a ‘relevant charitable purpose’
VAT Refunds On Labour And Building materials
You can claim a VAT refund for the building materials that are incorporated into the building that cannot be removed without tools or damaging the structure of the building.
In order to be eligible for a VAT refund, you must apply to HM Revenue and Customs (HMRC) within 3 months of completing the work.
For any work to be zero-rated for VAT, it must take place during the construction project, or be very closely related to it (eg demolishing existing buildings and preparing for site for new builds). This is known as work done ‘in the course of construction’.
You can’t claim zero-rate VAT on work you do after a new build is finished, apart from correcting any defects in the original work.
All labour on a qualifying building can be zero-rated, but there are special rules on what counts as building materials for VAT purposes.
Are you a tradesmen or owner of a construction business? Have you got right insurance in place to protect you from potentially expensive claims?