It’s been a while since a VAT update so I thought I’d review the current position, especially in view of the pre-Christmas credit-crunch fuelled reduction in the standard rate of VAT from 17.5% to 15%.

My own VAT reclaim will be due soon – by early Summer at the latest, so I thought I’d review the rates in-case anything had changed. I’m pleased to report (from the point of view of change being likely to cause more work and / or hassle) that the VAT reduction does not effect conversions and the 5% rate remains as it was…

Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.

Read more

Having spent much time pawing over VAT documentation in preparation for my VAT reclaim I discovered that the HM Revenue & Customs definition of items ‘ordinarily’ incorporated in a building makes for interesting reading and may suggest a few VAT free inclusions for your design.

In short, you can claim for building materials that are ordinarily incorporated into that type of building during the course of the conversion. These include:

• Air conditioning; Not good for the environment – definitely not encouraged!
• Dust extractors and filters (including built-in vacuum cleaners); Built in vacuum cleaners! – Cool!
• Flooring materials (not carpets); If you needed an excuse for tiled or wooden floors this may be it.
• Light fittings (including chandeliers); Chandeliers for the country estate.
• Saunas; Tipping our British hats to our Scandinavian cousins – great for cleaning the pores.
• Solar panels; Go on you know it makes sense.
• Solid fuel cookers and oil-fired boilers;
• Swimming pools inside the building, including water heaters and filters but not diving boards and other specialist equipment; Go swimming on the VAT man, but no diving boards!
• Turf, plants and trees (as detailed on a landscaping scheme approved by a planning authority);
• Fencing permanently erected around the boundary of the dwelling;
• Wiring (including power circuits and computer, telephone and TV cabling). Boys toy wiring is VAT deductible!

I know that many UK readers of this blog are interested in Value Added Tax (VAT) in relation to conversion projects. As we’ll be nearing the end of our own project over the next couple of months (fingers crossed), I thought a refresher on what the current policy is and what you need to do to make a claim was in order.

So here’s my brief & scrappy mbc summary of how to prepare for your VAT reclaim.

Read Notice 719.

Selected Highlights:

Non-residential building converters both professional and amateur can reclaim VAT on eligible goods and services, or in more words…

Developers can recover, through their VAT return, the VAT on their costs that relate to zero-rated or standard-rated sales. They cannot recover VAT that relates to exempt sales.

The Refund Scheme puts DIY builders and converters in a broadly similar position to a developer selling a zero-rated property, by refunding them the VAT on their main construction or conversion costs.

For conversions, you can also claim for the VAT on conversion services supplied to you.

Scope

If, [...] you are carrying out the conversion of a non-residential building [...] you can claim the VAT charged by your builder for converting the building.

Who does the work?

You need not carry out all, or any, of the work yourself. You can claim for eligible goods you buy and give to your builder to incorporate into the building (or its site) provided that the work is done before the date of completion.

Then skip to Section 7 and read 7.1 What is a non-residential conversion? to check the status of your conversion.

We’re then into the meat, What can we reclaim VAT on?

Starting with the exclusions:

• Fitted furniture, other than fitted kitchen furniture;
• Most electrical and gas appliances (Broadly you can claim for electrical appliances used for the purpose of heating, lighting, ventilation, security, hygiene, mobility or amplification in places of worship!);
• Carpets, underlay and carpet tiles;
• Garden ornaments, sheds and greenhouses;
• Plant, tools and equipment;
• Consumables such as sand paper, that are not actually incorporated in the building;
• Land.

So you can claim for building materials that are ordinarily incorporated into that type of building during the course of the conversion. Definitions of these terms following throughout section 8.

What VAT Rate should I be charged
I think I’ve already done this one to death on this site, but here we go again…

For conversions, a builder can sometimes charge VAT at the reduced rate of 5% or, if you are a housing association, at the zero rate.

Bear in mind that…

Claims must be made no more than three months after the construction or conversion is completed.
…
Normally [a building can be considered as completed when] it has been finished according to the original plans. In cases of doubt, a building can be regarded as still under construction up until the date when a certificate of completion is issued by the local planning authority.

That’s the background out of the way, assuming you’ve been keeping your receipts the next step is…

Complete the claim forms.

Either phone 0845 010 9000 and ask for a claim pack or download the forms from these links that I’ve generously provided:

VAT 431 part 1 Claim form VAT Refunds for DIY Builders
VAT 431 part 2A  Description of building and quantities of goods and materials used
VAT 431 part 2B Description of services for DIY conversions
VAT 431 part 3 Goods, materials and services claimed for which the invoices show VAT separately
VAT 431 part 3 continuation sheet
VAT 431 part 4 Goods, materials and services claimed for invoices not showing VAT separately
VAT 431 part 4 continuation sheet

I’ll keep you updated as my own claim progresses…

As well as the health benefits of not using carpets in your conversion project, alternatives can also help your bank balance when incorporated into the building during its conversion.

You can reclaim VAT spent on flooring during your conversion except for carpet.

8.10 Carpets
Carpets, carpet tiles and underlay are not building materials for VAT purposes and cannot be claimed.

Other forms of flooring or fixed floor covering, such as vinyl, ceramic tiles, parquet and wooden floor systems are building materials and can be claimed.

extract from HMRC: Notice 719: VAT refunds for ‘do it yourself’ builders and converters

One to bear in mind when planning your conversion.

I thought it was about time to review the VAT situation regarding the barn to ensure that my understanding is correct, so an overview of the current legislation follows with appropriate extracts.

My apologies if any of this reads a strangely, I wanted to keep as much of the wording from the official sources intact to avoid incorrect paraphrasing or misquoting. My focus in reading these documents has been very much on barn conversions so again my apologies if your interests lie elsewhere.

Notice 719: VAT refunds for ‘do it yourself’ builders and converters

Who can claim?
You can claim if you buy eligible goods and services that are used to convert a non-residential building into a qualifying dwelling or communal residential building.

Do I need to do the work myself?
You can claim for eligible goods you buy and give to your builder to incorporate into the building (or its site) provided that the work is done before the date of completion

Conversions of non-residential buildings
What is a ‘non-residential conversion’
A ‘non-residential conversion’ takes place when the building (or part) being converted has never been used as a dwelling – and it is converted into a building designed as a dwelling.

Examples of a ‘non-residential conversion’ include the conversion of:
…an agricultural building (such as a barn) Hooray!…

Will I be charged VAT on goods?
Retailers and builder’s merchants charge VAT at the standard-rate on most items they sell.

Builders, however, charge VAT on building materials that they supply and incorporate in a building (or its site) at the same rate as for their work. So, if their work is zero-rated or reduced-rated, then so are the building materials. This does not apply to ‘non-building materials’ (the VAT on which you cannot claim), which remain standard-rated.

Take care to ensure that you are charged the correct amount of VAT, as you can only reclaim VAT that has been correctly charged.

On what goods can I claim VAT?
You cannot claim for:

• fitted furniture, other than fitted kitchen furniture…
• most electrical and gas appliances…
• carpets, underlay and carpet tiles…
• garden ornaments, sheds and greenhouses;
• plant, tools and equipment;
• consumables that are not actually incorporated in the building (e.g. sand paper, white spirit, etc.);
• building land…

[Building materials are] the articles [that] are ‘incorporated’ in the building (or its site).
[There is a list of acceptable building materials in section 8.11 Examples of items 'ordinarily' incorporated in a building]

9.1 Will I be charged VAT on services?
For conversions, a builder can sometimes charge VAT at the reduced rate of 5% or, if you are a housing association, at the zero rate.

If…you are carrying out the conversion of a non-residential building…you can claim the VAT charged by your builder for converting the building.

Further information on the liability of builder’s services and how they tax goods is explained in Notice 708 Buildings and construction [see below]

Can I make claims as the work progresses?
No. You can only make a single claim when the construction or conversion of the building is completed.
…Claims must be made no more than three months after the construction or conversion is completed…
…a building can be regarded as still under construction up until the date when a certificate of completion is issued by the local planning authority.

Notice 708: Buildings and construction [download only]

Who should read this notice?
You may find this notice useful if you:
> are a contractor or sub-contractor;
> are a developer;
> need to issue a certificate in order to obtain zero-rated or reduced-rated building work…

VAT liability – Construction services
The construction of a new building and work to an existing building is normally standard-rated. There are, however, various exceptions to this.
…
Other [(than the conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building)] conversions of premises to a different residential use. [i.e a barn conversion] … Rate of VAT 5%

Builders, however, charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work.

So in summary:

• Builders should charge a VAT rate of 5% on materials that they source and their labour costs.
• Following completion of the building a claim may me made to HMRC for any VAT that has been paid (at either the full or reduced rate). This must be within three months of completion and is a one-off event (i.e. no second chance) so keep all those invoices.