Are you considering building your own home? It is a dream for many and is probably going to be the biggest financial investment you ever make with costs likely to run perhaps into hundreds of thousands of pounds.  

If you were to purchase a new property from a developer then for VAT purposes this is zero-rated (in other words there is no VAT passed on to you as the purchaser). 

VAT has recently been in the news as the standard rate (currently 17.5%) is shortly to increase (on 4 January 2011) to 20%.

Perhaps in an effort to encourage DIY house-builders HM Revenue & Customs (HMRC) provide a VAT refund scheme for a person who builds their own home which has the effect to put them into a similar position as a person who buys a zero-rated house built by a property developer. In effect this allows the DIY house-builder to recover VAT paid by them in certain circumstances.

The relevant claim form (VAT 431NB) together with guidance notes are available from HMRC’s website. The guidance notes outline the specific conditions and for which items a VAT refund can be made however in summary there are several key requirements:

1. You must be constructing a new dwelling not for business purposes which is to be used either by you or your relatives as a principal place of residence and you must not intend to sell or let out or use the property for any other business purpose.

2. The claim for a VAT refund must be submitted within 3 months from the completion of the building works.  It is vitally important for you to keep full receipts so that these can be submitted to HMRC in support of your VAT refund claim.

3. A VAT refund claim can be used to recover VAT incurred by a DIY house-builder on such items as building materials. The invoices however must be addressed to the same relevant “applicant” for the purposes of claiming the VAT refund.

One of the other key costs is the construction services (i.e. labour costs). If these are provided by any VAT registered builder or contractor then you should not be charged VAT for construction services because most construction services and supplies are eligible for zero-rating.

You will however need to specifically discuss this with the contractor before any work commences and agree with them that they will invoice you on the basis of a zero-rating for the services supplied. 

For more information on these issues please contact

Oliver Sharp

or your usual Lewis Silkin contact