85 property” as explained in Chapter 15 to 17. You’ll need to budget for the unclaimable VAT at the planning stage, especially if you’re applying for a bank loan to fund the project.
Installation of certain energy-saving materials is eligible for the reduced rate of VAT Information about this relief is in HMRC VAT Notice 708/6: Energy-saving materials http://tinyurl.com/brtzhub.
The reduced rate applies when the materials are installed in residential accommodation, including dwellings and multi-occupancy buildings; or when the properties are used by charities for non-business purposes.
The notice lists the materials that are covered by the relief (see paragraph 2.5). They include such things as insulation; controls for heating and water systems; solar panels; wind or water turbines.
The notice also clarifies when certain other services that are ancillary to the installation of the energy-saving materials are covered by the reduced rate, such as extending the size of a loft hatch to enable access to lofts when installing insulation.
Insulation of whole central heating systems is not covered by the reduced rate, unless under the grant funded scheme mentioned below.
HMRC’s notice also explains HMRC’s view about the VAT liability of installation of the energy-saving materials done at the same time as other construction work, such as extending a property to create an additional dwelling. However in such cases, the retro-fitting of energy-saving materials could be regarded as a mixed supply, which can be apportioned between standard rated and reduced rate work.
Installation of grant funded heating system measures is eligible for the reduced rate of VAT
The intention of this relief is to help those on lower incomes install certain heating measures in their homes.
The main principles are similar to those applying to the installation of energy-saving materials, as explained above, with the following differences:
It only applies to the supply and installation of such equipment that are funded by grants, such as grants from local authorities.
The recipient must fall within the definition of a “qualifying person”; including the over 60’s and those receiving certain types of benefit.
It can apply to the installation of a wide range of heating equipment including central heating, storage heaters, radiators, gas-fired boilers. A full list is included in paragraph 3 of Notice 708/6.
The reduced rate also applies to grant-funded connection or reconnection to a mains gas supply relating to a qualifying person's sole or main residence.
Alterations to suit the condition of people with disabilities is eligible for the zero-rate Certain alteration work for people with disabilities can be zero-rated. The work covered by the includes:
86 Constructing a ramp or widening a doorway or passage.
Providing, extending or adapting a bathroom, toilet or washroom.
The zero-rate only applies when the work and related goods is done at the person’s home; certain charitable buildings and residential homes. The customer has to provide a certificate confirming that he/she is eligible for the relief.
Further details can be found in HMRC VAT Notice 701/7: VAT Reliefs for Disabled People, paragraph 6 http://tinyurl.com/btkcskn. Details of the certificates that are required are at paragraph 10 of the notice.
N.B. The subject of VAT reliefs for the disabled is a very detailed and complicated subject. HMRC's guidance in Notice 701/7 is very comprehensive, but if you're considering large value expenditure and will be issuing certificates to contractors, you may want to take VAT specialist advice to make sure that your claim is valid and that you're claiming as much relief as possible.
Installation of mobility aids for the elderly for use in domestic accommodation is eligible for the reduced rate
The reduced rate applies to certain installation of mobility aids for the elderly in domestic accommodation, as explained here: http://www.hmrc.gov.uk/vat/sectors/consumers/mobility- aids.htm
People aged 60 or over are entitled to the reduced rate of VAT on the supply and installation of these items:
grab rails ramps stair lifts bath lifts
built-in shower seats or showers containing built-in shower seats walk-in baths with sealable doors
The guidance explains that the relief only applies when the goods are installed in private homes. The customer has to provide a certificate to the contractor confirming his/her eligibility for the reduced rate. You can find the certificate that you would need to use in HMRC's guidance.
Chapter 12: Checklist
Unless the work qualifies for the reduced rate as part of a conversion or renovation, construction work on existing dwellings is normally liable to VAT at 20%.
In certain limited situations, the supply and installation of certain energy saving insulation and grant funded heating systems is eligible for the reduced rate.
Certain domestic adaptations for the handicapped and the elderly are zero-rated if the customer provides a certificate confirming that they are eligible for the relief.
87 DIY Case Studies: VAT on costs
Arthur
Chapter 6 explains how Arthur can buy the land VAT exempt, while Chapters 7 and 9 explain when the zero-rate applies to new construction and building materials supplied in the course of those construction services.
Actual VAT expenditure as follows:
Building materials: £60,000 + VAT@ 20% = £12,000
Carpets, the Aga and electric gates that aren’t “builders’ materials”: £10,000 + VAT@20% = £2,000 Builders' services: £30,000: zero-rated
Contractors services for installing gas, electricity, water & sewerage: £12,000: zero-rated Land: £70,000: VAT exempt
Legal services including planning application: £6,000 + VAT@20%: £1,200 Surveyors, architects, designers services: £12,000 + VAT@20%: £2,400 Hire of equipment: £4,000 + VAT@20%: £800
VAT saved on property purchase by purchasing the land VAT exempt: £14,000 VAT saved on construction work by zero-rate on certain contractors’ services: : £8,400 Total VAT saving on expenditure: £22,400
Potential VAT cost: £40,800 (see p54) less £22,400: VAT on expenditure: £18.400
At the end of Section 3, we’ll see how much VAT Arthur can save by claiming VAT under the DIY refund scheme.
88 Mike and Sue
PROPERTY PURCHASE
Chapter 6 explains how to buy commercial properties exempt from VAT using the VAT 1614D procedure.
The barn cost £150,000 and the vendor has opted to tax the property. Mike and Sue issue a VAT 1614D certificate before the price is legally fixed. VAT cost: £150,000 @ VAT exempt: NIL
OTHER EXPENDITURE
See Chapter 8 which explains when conversions can be reduced rated.
The conversion will create a new single household dwelling and therefore is a “qualifying conversion”. This means that some of the conversion work qualifies for the 5% rate.
*The reduced rate of 5% only applies to work carried out to provide power, water, sewerage and access if the work is within the building itself or its immediate site. See Chapter 8.
Based on the potential worst case scenario as shown on page 52, where we calculated the potential VAT costs could be £73,200, Mike and Sue can save £55,200 by taking advantage of all of the VAT reliefs available on expenditure as follows:
VAT saved on property purchase by purchasing the property VAT exempt: £30,000 VAT saved on construction work by reduced rate on certain contractors’ services: £25,200 Total VAT saving on expenditure: £55,200 Potential VAT cost: £73,200 (see p55) less £55,200: VAT on expenditure: £18.000
At the end of Section 3, we’ll see how much more VAT Mike and Sue can save under the DIY refund scheme.
89
Section 3: The DIY refund scheme
Chapters 13 to 17 are specifically for those of you constructing or converting your own home, explaining if, when and how to make a DIY claim.
You should read these chapters in conjunction with the claim forms; VAT 431NB and 431C. Chapter 13 When you can claim
New Builds Conversions
o Converting a non-residential property” What’s a dwelling?
Chapter 14 What you can claim Goods
Services
The “design and build” rule
What happens when VAT is over-charged or incorrectly charged? Chapter 15 How to make a claim
HMRC guidance and claim forms:
New builds: VAT 431NB: http://tinyurl.com/6ykbjc9
Conversions: VAT 431C: http://tinyurl.com/btwenty-eightyrv3 Chapter 16 What to do if things don't go to plan
Submitting a claim when you can’t move in What happens if you change your mind? What if HMRC refuse the claim?
Other practical issues
Chapter 17 Conversions of pubs, shops and other commercial properties with existing accommodation.
90 Chapter 13
Are you eligible for a DIY refund scheme claim?
PLEASE READ THE INTRODUCTION AND CHAPTERS 1 - 9 BEFORE READING THIS! The earlier chapters will help you to understand how VAT works and when you can save VAT on construction work. This is very important because you can only claim VAT under the DIY Refund
scheme if you've paid the right amount of VAT in the first place.
In this chapter, I'll explain when you're eligible to claim VAT under the DIY New Build scheme or the DIY Home Converters' scheme.
The purpose of the scheme is to give the same sort of VAT savings if you build or convert your own home as a commercial developer.
You can claim VAT on certain costs if you build a new dwelling or convert an existing property into a dwelling for use by your you and your family, whether as a permanent home or as a holiday home.
Please also read forms VAT431NB (new homes) and VAT431C (conversions) and the accompanying guidance notes in conjunction with this book. I've explained most of the rules in some detail, but you need to read HMRC's guidance to make sure that you understand all of the rules. There's a lot of practical information in this book in addition to HMRC's guidance that will help you to make a successful claim.
Is this the first page you’ve opened in the book? Where to start.
Read the claim form VAT 431NB or 431C and guidance notes CAREFULLY New construction
Conversions
Converting a non-residential property into a dwelling
o What’s a dwelling?
o Non-residential conversion
o Conversions of mixed residential and commercial properties
o The “ten year unoccupied rule”VAT savings on contractors’ services Reduced rated conversion services
o Building materials
o Contractors must apportion costs
o You can only claim VAT “correctly charged” under the DIY Refund scheme
o Get as much work done before completion as possible What’s a conversion?
Other ways of saving VAT.
Is this the first page you’ve opened in this book?
If you’re considering a DIY project, you may think that you don’t need to know about the stuff in the earlier chapters of this book. You might also assume that you don't need to be too bothered about how much VAT your contractors charge because you'll be able to claim it by a DIY scheme.