Know your VAT position

Andrew Jones the VATman is the leading specialist on the VAT431 scheme for reclaiming VAT on self-builds, covering both new builds and conversions. Selfbuilder + Homemaker asked him to explain more about the ins and outs of the scheme, and how his firm can help

Q: Hi Andrew, could you briefly summarise what the scheme is all about?

A: The scheme has been around in different formats since 1974. It is designed – although I’d not quite agree with how successful it is, to put private individuals on the same level playing field as a VAT registered developer.

Q: When you say you’d not quite agree, could you expand on that?

A: Firstly, there are a lot of costs that cannot be reclaimed under the scheme, whereas a developer benefits from all these. HMRC actively seek reasons not to repay the claim, and subsequently reasons to reduce the claim once they have acknowledged the claim is valid.

Q: What reasons could HMRC have for refusing the claim in its entirety?

A: There is a very small timeframe in which to submit – should you submit outside that timeframe, HMRC could refuse. Another reason could be that the planning restricts who will live in the dwelling, for how long, or whether there is a tie to a business or agriculture. HMRC will also search the council tax banding register to see who lives there and for how long that person or people have been there – this can also become a problem. Another search carried out under this scheme is to see if the property is being sold. You cannot sell a property when building and reclaiming the VAT under this scheme, although there is no time limit under the scheme for an amount of time you have to live there afterwards.

Q: And what about reducing the claim after overcoming that hurdle?

A: HMRC require to view the original invoices. Order confirmations, proformas, quotations and so on will not be accepted, so you must present HMRC with the correct documents. Another reason is if you have paid the wrong rate of VAT to your supplier, HMRC will not reimburse this VAT to you in your VAT reclaim.

Q: That is confusing, as I thought everyone pays 20 percent VAT and you send all the bills to HMRC at the end and wait for your cheque. Maybe it’s not as straightforward?

A: You’re correct in theory. There are 2 variations to the VAT431 scheme, new build or conversion. It’s important you apply the correct rate of VAT to your project. On a new build, any contractor visiting site to do work for you should not charge you VAT on their labour or any materials used, as your project is VAT exempt. This does not apply to purchases made at builders’ merchants and other suppliers, where you will pay 20 percent as normal and then reclaim the VAT in your VAT reclaim. If you pay 20 percent VAT to a contractor and should not have done so, HMRC will not reimburse this to you despite the contractor having passed the VAT on to HMRC in their quarterly VAT return.

On a conversion, it’s slightly more complicated; here any contractor visiting site to do work for you should only charge you 5 percent VAT for his labour and all materials used, then the 5 percent invoices are included together in your VAT reclaim with your 20 percent purchases from builders’ merchants and alike. Should you pay 20 percent VAT when you should have paid 5 percent, HMRC will not reimburse you any of the VAT on that invoice – not the 20 percent, the 5 percent or the difference.

Q: How can you let your builder know you’re not on 20 percent VAT ?

A: If you’re in any doubt if you’re 5 percent or zero rated to contractors, don’t hesitate in contacting me and I’ll review your planning. But if you are sure of your position then good practice would be to present the contractor with your planning decision notice for their records.

Q: Is it that simple? What if the builder refuses?

A: There are two common difficulties here. The contractor may ask for a VAT exemption certificate or a reduced rate of VAT certificate, or may refuse outright. If they ask for a certificate, we can help, as HMRC have not provided these since maybe before the 90s, but we have an alternative. (Please do not let this put you off the contractor, he is just making sure and covering his own financial exposure.) If the builder outright refuses, you need to decide if you want to deal with someone who does not follow the rules, and if you’re paying them more than you should.

Q: So where does your firm fit into all of this?

A: We provide a submission preparation service where we take your paperwork – in whatever condition you have them, you need to do nothing at all with them – and we will prepare and submit your reclaim for you. We will contact suppliers for correct documents, make sure no stone is left unturned in order to maximise your reclaim and most importantly, assist in appeasing HMRC when the questions arrive after submitting the reclaim.

Q: So what do you see as the most difficult part of the VAT reclaim process for self-builders?

A: We have only covered some of the big issues, and each person and project have their own potential pitfalls, but briefly – when to submit; making sure it’s the correct rate of VAT, names on the invoices; and HMRC’s questions after submitting. However I have a helpful booklet with over 100 Q&A’s similar to the above. If you’d like a copy, please get in touch at Andrew(Replace this parenthesis with the @ sign) For a free, no obligation quotation, please call 01269 825248 or visit