20 ways to save VAT on DIY property development and where to find the information VAT on contractors' services
1. Zero-rating for the construction of new dwellings: see Chapter 7.
2. If you're changing the number of dwellings in an existing property, then the reduced rate may apply to the contractor's services: see Chapter 8.
3. If you're renovating or altering a dwelling that has been empty for 2 years or longer, then the reduced rate may apply to the contractor's services: see Chapter 8.
4. Buy commercial properties VAT exempt using VAT1614D certificate: see Chapter 6. 5. Buy building land to build your own home VAT exempt: see Chapter 6.
6. Ensure work is done before completion to get the zero-rate or reduced rat, because any work done after completion is liable to 20% VAT even if it's new build, conversion and renovations: See Chapters 7,8 and 10.
7. If your project includes work at mixed rates of VAT, e.g. reduced rated conversions and standard rated refurbishments, ask the contractor to apportion the invoice for work done to any common areas of the property. This work can be apportioned between the standard rate and other work. See Chapters 1, 7, 8 and Appendix 3.
8. Take advantage of "specialized" reliefs where possible; e.g. reduced rate for installation of energy saving materials; zero-rate work on certain work for the elderly and disabled: see Chapter 13.
9. Supply and installation of building materials is zero-rated in new dwellings. The zero-rate also usually applies to the installation of other goods if done "in the course of construction": see Chapters 7 and 9.
DIY refund scheme
10. Make sure contractors don't over charge VAT as you can't claim VAT incorrectly charged. 11. Remember that you can't claim VAT on any goods or services after completion. Buy building
materials before completion and ensure that any conversion services for the refund scheme are finished before completion.
Other practical suggestions
12. You may be able to save VAT on the hire of goods, scaffolding etc by employing a single contractor who hires goods as part of the zero-rated new construction. See Chapter 12 and the FAQs in Chapter 21 for more information.
13. "Design and build" contracts can help to VAT costs on professional fees and project management: see Chapter 12.
14. If you're renovating or altering an existing dwelling, consider whether it's worth waiting until the property has been unoccupied for 2 years so that the work qualifies the reduced rate: see Chapter 8.
48 15. If you're converting commercial property into dwellings, the VAT cost is usually cheaper if
you convert horizontally than vertically. See Chapter 8 and appendix to Chapter 8.
And finally, when is it cheaper to use unregistered contractors?
16. For labour only, using unregistered suppliers will save 5% VAT on renovations and conversions.
17. If you buy goods or materials only, then you have to pay 20% VAT on the good. You can only claim this back if you qualify under the DIY refund scheme.
18. If it's goods and services, remember that the zero-rate and reduced rate only applies to building materials SUPPLIED AND INSTALLED BY THE CONTRACTOR in the course of the construction/conversion/renovation etc. See Chapter 9 about building materials.
19. Otherwise, the VAT cost usually depends on the proportion/value of the goods to labour. Generally speaking, the higher the proportion/value of goods to labour, then the VAT cost will be lower if you employ VAT registered contractors so they can take advantage of the 5% rate on the goods and materials.
20. Every situation is unique and you need to do your own calculations to see how the costs work in your situation. See Chapter 4 and the case studies for some examples of how to work it all out.
49 Chapter 6
Buying commercial property for home-conversions How to buy your property VAT free: VAT 1614D certificate
If you're converting or refurbishing a property, the property itself is usually the single most expensive item. In this chapter, we’ll be looking at when and how you can purchase EMPTY commercial properties VAT exempt if you intend to use them (i.e. live in as purchased) or convert them into dwellings. You can purchase such properties for conversion VAT exempt by issuing a VAT 1614D certificate, as explained in this chapter.
This is particularly important for those of you hoping to make a DIY home-converters claim, because you can't claim VAT on the purchase of a property under the scheme.
This is a long chapter, but please take the time to read it if you're planning to buy commercial property where the owner has opted to tax. The appendix to this chapter contains answers to the most common FAQs so you should find what you need to know about the VAT1614D procedure here.
YOU NEED TO UNDERSTAND THIS SUBJECT BEFORE YOU EVEN CONSIDER MAKING AN OFFER TO BUY ANY SUCH PROPERTY. OTHERWISE IT MAY BE TOO LATE AND THE VENDOR MAY HAVE TO CHARGE VAT.
Why do commercial property owners have to charge VAT?
How to buy opted commercial property VAT exempt: the VAT1614D procedure
When can I use the VAT1614D? How do I do it?
o When is the price "legally fixed"?
o When can I issue the VAT 1614D to the vendor? Where do I get the form?
Building land
Buying as an intermediary
The vendor’s VAT position: the 2-price scenario Issuing certificates before the price is legally fixed Keep a record of the events and evidence of intent What your solicitor needs to know
Buying VAT free can reduce your stamp duty as well!
HMRC guidance: VAT Notice 742a: Opting to tax land and buildings; paragraph 3.4: http://tinyurl.com/pyn9kuo.
Why do commercial property owners have to charge VAT?
Usually the sale or rent of commercial property is VAT exempt. But there are 2 situations when a commercial property owner has to charge VAT: