How to Reclaim VAT on New Build | HMRC Rules Explained

Building your own home is a massive achievement. You get the chance to make your home exactly how you want it, but it comes with a hefty price tag. The good news is that you could claim back some of the costs through VAT reclaim on a new build.

Moreover, it can help you manage your budget when building your new property. By using the HM Revenue and Customs DIY Housebuilders Scheme, you can recover 20% Value Added Tax (VAT) paid on building materials.

This blog explains:

• What is VAT reclaim on new build?
• How to reclaim VAT on a new build
• How HMRC’s VAT refund scheme works and much more

What is VAT Reclaim on New Build?

A new build is a building that is constructed from scratch and generally does not include any part of an existing building. VAT reclaim on new build is an HMRC-managed scheme that allows individuals building their own home to claim back the 20% VAT paid on eligible building materials and services. It applies specifically to new, residential, self-contained dwellings.

This helps homeowners save thousands of pounds. However, this standard rate does not apply when converting an existing building into a dwelling.

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DIY Housebuilders Scheme

Under the DIY Housebuilders Scheme, you will not pay VAT when purchasing a new house from a property developer due to the zero-rated sale.

However, if you build your own house, you cannot take advantage of this zero-rating. This scheme allows you to reclaim VAT on building materials, mirroring the benefits of buying a new house at the zero rate.

Who is Eligible for the Scheme?

To qualify for a VAT reclaim on new build, your new build project must meet specific HMRC criteria:

Valid Permissions

You can claim VAT on building materials if you have planning permission to construct a new residential dwelling.

New Dwelling

Your property must be a standalone, self-contained home built from scratch on a cleared site.

Personal Use

Your property must be for you or your family. You cannot reclaim VAT if you intend to sell the property instantly or use it for business.

Who is Not Eligible for the Scheme?

You are ineligible to use this scheme if you have built a property that cannot be disposed of or used separately due to planning permission conditions.

Moreover, you are not eligible for VAT reclaim on new build if the property is intended for sale, letting, or any other business use, including a dwelling necessary for living where you work.

What Will I Need to Submit With My VAT Claim?

To submit a VAT reclaim on new build project under the DIY Housebuilders Scheme, you must fill out your application form and provide supporting documents.

HMRC is strict about the documentation, and if you submit any incorrect information or miss any paperwork, it may reject your claim. The essential documents you may need with your VAT431NB form are:

Completion Certificate

A building regulations completion certificate issued by your local authority or an approved inspector. This certificate is proof that the building is finished.

Building Plans

You must submit a full set of approved building plans. A complete building plan includes internal layout, site and block plans, and other technical details.

Planning Permission

You also need to submit evidence of full planning permission. If you have outline planning permission, you must also include the approval of reserved matters.

Original VAT Invoices

HMRC requires original invoices, not photocopies. Your original VAT invoices must show:

• Description of the goods
• Amount of VAT charged
• Price and quantity of materials
• Supplier’s name and VAT registration number

Schedule of Invoices

A detailed summary of all the invoices you are claiming for. This summary is usually prepared by using the template provided in the HMRC claim pack.

What Kind of Building Projects Can I Reclaim The VAT on?

Once your building project is officially completed, you can claim VAT on the new build property. Under the HMRC DIY Housebuilders Scheme, you can claim VAT only when you include:

• Building a new house
• Converting an existing building into a dwelling
• Making an old property usable again

However, projects such as extensions, loft conversions, and most annexes do not qualify for VAT reclaim on new build. These properties are treated as alterations to existing properties rather than as the construction of new buildings.

Moreover, the new build must meet specific criteria, including having its own facilities, not having internal access to another dwelling, and being capable of separate occupation.

Are There Any New Build Projects Where I Can’t Claim Back VAT?

Yes, some projects do not qualify for the HMRC’s DIY Housebuilder’s Scheme. Projects where you cannot claim VAT are:

• Extensions, meaning adding rooms or expanding an old house
• Annexes (in most cases)
• Converting an old home into another home
• Renovating an existing home

When Can I Reclaim the VAT on a New Build Property?

There is a strict time limit to submit your one-time claim for building materials. You must submit your VAT reclaim on new build within six months of the project’s completion date.

Additionally, HMRC allows only one claim per dwelling. You cannot submit interim claims. You must wait until the end to include all the eligible invoices at once.

Which Materials Can I Reclaim VAT On?

You can claim VAT on materials that are incorporated into the building. According to HMRC, “building materials are items that are incorporated in the building during the construction of the building.” This definition does not include items such as:

• Appliances like gas or most electrical items
• Furniture, except for some kitchen units
• Carpets or carpet materials

You can claim VAT on materials such as:

• Structural materials such as sand, bricks, roofing tiles, insulation, concrete, and timber.
• Some fixed kitchen units, like cupboards and fixed sinks
• Boilers
• Solar panels
• Radiators
• Bathroom sanitary ware
• Paint
• Wood flooring
• Sewage treatment plants

Materials You Cannot Claim VAT For

Here are some of the materials that are not included for VAT reclaim on new build:

• Furniture
• Carpet and carpet tiles
• Appliances such as ovens, washing machines, freezers, dishwashers, fridges, extractor fans, and tumble dryers.
• Air conditioning units, in most cases
• Security system beyond basic alarms

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How Much VAT Can I Claim Back on My Self-Build?

There is no fixed amount of VAT you can claim back. However, the total depends on the VAT actually incurred on eligible building materials. Your refund depends on how much you have spent. For example, if you paid £30,000 VAT, you can claim it all back.

Eligible Costs

A self-builder can reclaim the standard 20% VAT paid on materials incorporated into the building.

Zero-Rated Labour

You cannot reclaim VAT on labour. If a contractor charges VAT, you must get that refund directly from the contractor.

For Conversions

If you are converting an existing house, the labour may be charged at a lower VAT rate of 5%. You can claim this 5% under a different scheme.

Visit the official HMRC website and learn more about VAT refunds for conversions.

How to Make VAT Reclaim on New Build Property?

To make VAT reclaim on new build project, you must follow a specific process through the DIY Housebuilders Scheme. HMRC has now moved to an online process. This means you can reclaim VAT through an online service or fill in form VAT431NB.

Gather the evidence you need, such as:

• Completion certificate
• Approved plans
• Original invoices
• Planning permission

Once you gather the required documents, use the Form VAT431NB for new builds. If you are converting an existing house, use VAT431C. Use the digital service of HMRC and enter your Government Gateway user ID and password.

If you want to post the form, you can download it. However, making a VAT reclaim on a new build online is generally faster.

Provide the list of all materials you are claiming and submit the application within the deadline. Since you can only claim once, you need to make your claim when the project is officially completed.

Pros and Cons of VAT Reclaim on New Build

VAT reclaim on new build provides financial relief, but it requires strict adherence to HMRC’s rules.

Pros of VAT Reclaim on New Build

Reclaiming VAT on new build has numerous benefits, such as:

• You can recover the 20% VAT paid on most building materials.
• There is an extended deadline, meaning you can have 6 months from the date of the completion certificate to file your claim.
• The simplified digital process made it possible to submit applications online. This reduces manual errors and speeds up processing time.
• Under the new digital system, you do not have to submit every physical invoice upfront. You only provide a schedule of invoices, though HMRC may request a sample for review.

Cons of VAT Reclaim on New Build

Some of the cons of claiming VAT on new build are:

• You are allowed only one claim per project. If you make a mistake or forget an invoice, you cannot submit a second claim.
• You need to pay VAT upfront to suppliers and can only reclaim it when the project is complete. This requires a higher initial budget, leading to increased cash flow pressure.
• If a contractor incorrectly charges you VAT on labour, HMRC will not refund it. You must recover the money directly from the contractor.
• You cannot reclaim VAT on professional fees, tools, or removable items.

VAT Reclaim Mistakes to Avoid

While making VAT reclaim on a new build, avoid the following mistakes:

• Missing deadlines
• Submitting incorrect information
• Losing invoices
• Claiming the wrong building materials
• Putting the wrong name or the wrong VAT registration number
• Being charged the wrong VAT rate

The Bottom Line

A VAT reclaim on new build is like a bonus for all your hard work. It can provide much-needed liquidity just when you are finishing your new building.

By understanding the HMRC rules, you can ensure you get every penny you are entitled to. Keep accurate records and claim your VAT on new build correctly. Furthermore, submit your VAT returns on time to avoid any hefty penalties.

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Managing VAT reclaim on new build can be daunting and time-consuming if you are new to it. You need professional help to manage your taxes and remain VAT compliant.

Our AccountingFirms platform connects you with qualified professionals who help manage your taxes and ensure compliance support. Ultimately, we have skilled accountants who provide efficient, accurate accounting services, including tax registration, VAT returns, and more.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.