Building your own home can be a dream come true, but it comes with its own set of financial challenges, including VAT on building materials. Unlike buying a new home from a developer, which is zero-rated for VAT, DIY housebuilders have to pay VAT on their purchases. Fortunately, the VAT DIY Housebuilders’ Scheme allows you to reclaim this VAT, levelling the playing field.

What is the VAT DIY Housebuilders’ Scheme?

When you build your own home, the VAT DIY Housebuilders’ Scheme allows you to claim VAT on building materials back. This scheme is designed to make DIY housebuilding more affordable by putting self-builders in a similar position to those buying new homes from developers, who don’t have to pay VAT.

Who Can Benefit from the Scheme?

You can benefit from the VAT DIY Housebuilders’ Scheme if you have planning permission to:

• Construct a new dwelling: This should be used as a family home or holiday home by you or your relatives.
• Buy a new building shell: You can buy an unfinished building from a developer and fit it out for residential or holiday use by you or your relatives.

Conditions and Restrictions

To claim a VAT refund under the scheme, certain conditions must be met:

• Lawful Construction: You must provide evidence that the construction is lawful, typically through planning permission documents.
• Use of the Property: The property must be for personal use, not for sale, rent, or business purposes.
• No Restrictive Planning Conditions: Refunds cannot be claimed if the property cannot be sold or used separately due to planning conditions.

Required Documentation

When claiming a VAT refund, you must submit proof that your construction is lawful. This includes:

1. Full planning permission.
2. Outline planning permission and approval of reserved matters.
3. Permitted development rights (e.g., local or neighbourhood development orders).
4. Section 106 Agreement, if applicable.

Ensure you send copies, not originals, as documents still need to be returned.

DIY Work and Using Contractors

You don’t need to do all the building work yourself. You can hire builders and tradespeople and still claim a VAT refund on eligible materials that you purchase and provide to them.

Understanding VAT Rates

Standard Rate: Most building materials are charged at 20% VAT.

Zero Rate: For qualifying new constructions, contractors can supply building materials at a zero VAT rate.

Eligible and Ineligible Items

Eligible for VAT Refund: Building materials incorporated into the building structure.

Not Eligible for VAT Refund: Fitted furniture, most electrical and gas appliances, carpets, garden sheds, greenhouses, ornaments, tools, equipment, consumables not incorporated into the building (e.g., sandpaper), and building land.

How to Calculate Your Claim

You can only reclaim VAT that you have actually paid, typically shown on your invoice. If VAT is charged at the standard rate, it constitutes one-sixth of the total amount. Remember, no VAT can be reclaimed on zero-rated items or from non-VAT-registered suppliers.

Making the Claim

For builds completed on or after 5 December 2023, you can only make one claim, which must be submitted within six months of completion. You can submit your claim through HMRC’s online service or by using the form VAT431NB. If your claim is rejected or not paid in full, you can ask HMRC to review their decision or appeal to the tribunal.

Building your own home is an exciting venture, and the VAT DIY Housebuilders’ Scheme can help make it more affordable by allowing you to reclaim VAT on building materials. By understanding the eligibility criteria, keeping thorough records, and following the correct procedures, you can maximize your refund and reduce the financial burden of your self-build project.