VAT on DIY homes
When you build your own home you can't reclaim the VAT charged on the materials, which puts you at a cost disadvantage compared to a commercial builder. However, you can apply for a VAT refund using the VAT scheme for DIY builders.
Unfortunately, the DIY scheme is unnecessarily complicated and is full of traps for the unwary. For example, VAT may only be reclaimed on building materials, not on services such as architects' fees. If you reclaim VAT on nonqualifying items, HMRC may slap a penalty on you for a careless error.
The home you are building must be for your own use, not a commercial venture to be sold or let out. Of course, you are likely to sell the home eventually, when your family's circumstances change, but you shouldn't say that on the application form.
A further trap is the state of the property before the work starts. The DIY scheme can apply to a new build, or the conversion of a non-residential property into a dwelling. If part of the property was residential before the work began (such as a flat above a pub), it won't qualify.
However, the DIY scheme can apply when a derelict property is converted into a home. The property must have been unoccupied for at least ten years, and HMRC have been known to ask for proof that it has been empty for that period.
We can help you claim a VAT refund under the DIY scheme, and advise on what evidence you need to support that claim.
