VAT on self build projects

In the UK, Value Added Tax is a ‘consumption tax’, meaning it is passed down the supply chain to the buyer. Individuals rarely get to claim this back in any way, though the business that do the ‘adding value’ part of things generally can; if only to offset the VAT passed down to them by suppliers.

Long story short, if you are building your own house (or some conversions), you are given some of the tax benefits that are usually only available to businesses. This can mean some really hefty savings with VAT currently at 20%. (sidenote: Hungary has the highest rate in the EU at 27%).

Graphic from the institute for hospitality, who, by the way are annoyed that UK hotels dont get better tax breaks

But, of course it isn’t as simple as knocking something up and writing the Chancellor a nice letter asking for 1/5th of your bank balance back. The exact categories of what you can and can’t include are worth a look; at a very, very broad level ‘structural’ stuff is okay, whereas appliances and decor aren’t.

So what is this big refund likely to actually get me back? Well, given the old ‘1/3rd land, 1/3rd costs and 1/3rd markup’ formula for building house, based on a nice, round £100,000 budget – those costs would be about £33,000 – so your VAT back might be around the £6000 mark. (Not to mention that 1/3rd markup you will have already saved).  Of course, it’s well known that many self-builders end up spending these savings on a higher quality finish- solar panels? new kitchen? underfloor heating?

The HMRC guidance is here, though it is pretty thorough and may bore you to tears:

“If you are building a new home or converting a building into a place to live, whether you do the work yourself or have it done for you, you may be able to reclaim the VAT you pay on some of the building materials and conversion services you use.”

This guide from Homebuilding & Renovating magazine is a great beginners guide, with a real life warning story about ensuring that you and any contractors you are using are both aware of what VAT to charge and what not to. Otherwise you will be trying to chase HMRC AND your contractors around afterwards.

Travis Perkins also provide a good bit of advice, unsurprisingly as self-builders will likely provide them with a fair bit of business. Top tips include remembering you only have 3 months after your completion date to get a claim in, and you only have one shot at it; so it’s no good finding the odd reciept down the back of the sofa once you’ve already put your claim in.

Would like to have a go but scared by the tax complications? Don’t forget to subscribe for more updates.

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