DIY Housebuilders Scheme for VAT: A Q&A Guide

The DIY Housebuilders Scheme allows individuals to reclaim the VAT they have incurred on building their own home.

On 5 December 2023, legislation was introduced to allow individuals to submit claims using HMRC’s new online form. For claims made after this date, an extension of the time limit to submit went from three to six months.

In this guide, Becky Hayes, Partner and Head of VAT at Westcotts, answers some of the common questions regarding the scheme when it is used by individuals building their new home.

1. Why is the Scheme available?

If you purchased a new home from a property developer, then you will not be charged VAT. However, if you build or convert a new home, then you may be charged VAT on materials and services. The scheme allows you to claim back the VAT incurred on building or converting your new home.

2. What types of buildings are eligible for the Scheme?

Eligible building projects include:

• The construction of a brand new dwelling.
• The conversion of a non-residential building to a residential dwelling, for example an agricultural barn.

In all scenarios, planning permission must be obtained and the completed dwelling must be intended for use as your and/or your relative’s residential home or a second dwelling such as a holiday home.

3. What types of buildings are not eligible for the Scheme?

The scheme cannot be used if you intend to use the completed dwelling for a business purpose. For example, residential lettings or for use in a furnished holiday let business.

In addition, the scheme cannot be used if the completed dwelling does not meet the definition of a dwelling for VAT purposes. This would be the case if the planning permission imposed a separate use or disposal condition.

4. Are there restrictions on the VAT that can be claimed?

There are some restrictions on the VAT that can be claimed. VAT can only be claimed on the purchase of building materials and certain services where the VAT has been correctly charged by the supplier.

‘Building materials’ are defined as goods ordinarily incorporated into a building or its site during the construction or conversion of a dwelling. Building materials do not include items such as furniture, electrical appliances, and carpets.

For new build properties, the services of a builder or contractor are normally zero-rated. This means no VAT is charged, and therefore, there’s nothing to reclaim. However, for conversions, the services of a builder or contractor are typically charged at the 5% rate of VAT and this VAT can normally be reclaimed.

VAT incurred on other services, for example architectural design, legal fees, and the hire of equipment cannot be reclaimed.

5. What do I need to make a claim?

If you complete a claim using the new digital form, you will need to upload:

• A copy of the planning consent and building plans
• The completion certificates
• Schedule of costs incurred including the amount of VAT that you want to claim

Once HMRC has carried out an initial assessment of the claim, they will confirm if the claim is eligible. From there, they will request a sample of invoices to review. In our experience, the sample will probably be 20 of the highest value invoices.

If you are converting a property, you may also need to provide evidence that the property was not previously a dwelling. Or, that it has been empty for 10 years before the work began.

6. Why has the time limit for making a claim under Scheme been extended?

Prior to 5 December 2023, the time limit to submit a claim was 3 months from the date of completion. It was thought that this time limit was too short and resulted in errors or missing information.

For claims made from 5 December 2023, the time limit has been extended to 6 months from completion.

HMRC’s guidance states that the 3 month deadline still applies if the property was completed before 5 December 2023. However, the legislation does not say this and we see no reason why the 6 month deadline would not apply if the claim is made on or after 5 December 2023.

7. Can I still submit my claim manually?

Yes, while the option to submit claims digitally has been introduced, the existing process for making paper-based claims will remain as an option. You will need to complete form VAT431NB for new build dwellings and form VAT431C for conversions.

8. How long does a claim take to be processed?

When submitting a claim form using the online service, HMRC say that they aim to respond with a claim reference within 2 weeks and the claim should be processed within 3 weeks of all information being received.

Claims submitted by post can take up to 4 weeks for a claim reference and up to 6 weeks for it to be processed.

If you need a helping hand or personalised advice, Westcotts VAT team is here to help. Get in contact with Becky via email becky.hayes@westcotts.uk or call 01392 288555.