VAT and other important taxes for self builders




Value Added Tax, AKA VAT

It’s important to note right away that VAT rates can and do change. They can change at the drop of a hat. You can check the government website for latest VAT rates here: https://www.gov.uk/vat-rates. In this article all numbers should be taken as VAT free, thus VAT is not included in the figures.

VAT ON NEW HOMES AND CONVERSIONS

When it comes to home building in the UK VAT world, these house situation holds special significance. If you are converting a non-domestic building, you will have VAT that is basically zero. If you are looking to create a new home, this will also be a zero based number. Why? You can reclaim the VAT. This means you can reclaim any VAT that you had to previously put out.




If you don’t think this is important, think again. This is very important. VAT were created back in 1983. Up until now, no one could do this. Up until now, you had to pay a normal standardized VAT rate.

Why is this all coming about now? The new home is considered second-hand. This is considered inequitable by those in the business. What this means is the VAT can’t be levied for the second-time. You can’t be charged a second time. This is why these situations escape it.

THE DEBATE

This is where the ball drops. Any time a new home is being planned, the VAT rate always gets called into question. It’s so strong that over the years there has been a lot of debate over it. It’s become so much of a debate that VAT reclaims might go away full-stop.

WHAT DOES THE ZERO RATE MEAN FOR RECLAIMS

This is something which I brought up earlier. In order to comply with the zero-rate situation, you must fall into one of two categories.

1) When it comes to reclaims, how is the overall housing situation affected?

2) What sort of costs can and should be considered for reclaim? Are there any costs which should not be included? Are there any costs of the reclaim that should not be overlooked?

RECLAIMING VAT

As long as you can verify that your home is a new one, you can still claim the zero-based rate. Just let your suppliers know. Your suppliers need to know your project is zero-based. They can claim this on their invoices too. Now if it is claimed on your invoices, you can always reclaim it later. This is where the definition of reclaims come in.

Sometimes this happens in the VAT situation. Sometimes old homes being converted get charged the standard rates. The standard rate is usually 20%. When this happens, you can get your money back. You simply need to send in the paperwork.

REMOVABLE VERSUS NON-MOVABLE

There are some things within the house the HMRC will consider for the flat VAT rate. If you still want to keep the zero-based VAT, you need to think of a few things. Are the objects removable? What I mean is, are the objects part of the house itself? Can these items be removed?

If the items fall into the category of removable, then the VAT will go to 20%. If the times fall into the other category, your rate will stay at zero. You have to verify this though. You have to show the paperwork saying which category these items fall into.

Like I said above, mistakes do happen. Sometimes things do get charged, things which shouldn’t be. Just let them know about the mistakes. This falls into the reclaims category as well.

WHAT ARE THE RULES AND THE EXCEPTIONS

KITCHENS: If the kitchen supplies and appliances are fitted, there will be a zero-based rate. No questions asked. If the appliances and supplies are non-fitted, there will be a standard rate applied. This is normally about 20%. Things like washers, dryers, cookers and washing machines are all considered standard. Don’t even bother to argue this point, you won’t get anywhere.

FITTED CUPBOARDS: This one is up for debate right now. Currently, if you build the cupboards yourself, you can reclaim these items under VAT. If you buy the fitted cupboards, you can’t claim.

FLOORING: Any kind of carpeting is thought of as standard. If the floor is already there, then it’s zero.

INTERNAL UNITS: Things like solar paneling and fire places are all considered to be zero-based. Water treatment units are not considered to be deductions. You will have to accept a standard rating for them.

ELECTRICS: Everything that falls into this category is considered to be zero-based. Light fixtures are also included. For the light fixtures you will need to provide proof. They need to be fitted, anything else is not acceptable.

Now you need to talk to an inspector about this one. Some will agree with this, others will not. Some inspectors will insist on charging you for the lighting. Every situation is different, so you will need to consider both sides.

FURNISHINGS: The curtains and blinds are going to be standard. The curtain rails can be reclaimed. Just fill out the form. If the furniture can be moved, you will get a standard rating. What about the fitted shelves? This one is still up for debate. Some say they should be included, others say they shouldn’t. There hasn’t been an exact decision made on these yet. Check back in your VAT guide regularly for updates.

OUTDOORS: Things like garages and driveways will be put under the category of zero-based. All other buildings on the outside will have the standard rating.

LADNSCAPING: This is another one which has a lot of grey areas. Some paving will be thought of as zero-based. It all depends. Think of it like this. If it’s not included in the original plans, you will have to pay a standard rate.

SWIMMING POOLS: This is another one which is up for debate. If you want the pool to be considered for the zero-rate, it needs to be in-house. In other words, it needs to be attached to the main house somehow. if it’s not, it will fall under the standard rate.

The basic rule of thumb here falls under detached versus attached. If it’s somehow attached to the main property and part of the plans, it will have a zero rating. If it’s not, the VAT will be standardized.

ONLY ONE PER PERSON PLEASE
A self-builder can reclaim their VAT at the VAT office. Now there is a problem with this. You can only make one reclaim at a time. Once you have filed your reclaim, you are done. That’s it.

This presents a major problem for those who are looking to complete their projects. Some people end up abandoning their ideas due to the lack of money. This is money that can be reclaimed with VAT filing. Due to the holes in the system, a majority of people never end up seeing their money.

HIRING A VAT BUILDER

There is a way around this though. You don’t have to go with the DIY idea. Being a self-builder has its pros, but it also has its cons. One of these cons involves the VAT reclaims and the lack of money you get back.

You can hire someone who is a VAT builder. This takes away most of your problems. How? Hiring someone like this means all invoices will be zero-based. The chances of making mistakes on this will be reduced. These guys are professional. They know what falls into which category. This will ensure you keep the money you are supposed to.

LOST IN THE SYSTEM

When you do things yourself, you run the risk of the reclaims getting lost in the system. There are people who are owed thousands of pounds in VAT reclaims. Since so many get lost in the shuffle, not many see this money. Since you can only do one reclaim per project, you run the risk of nobody seeing the other claims you are due.

BUILDINGS ALREADY LISTED

This used to be a pretty fair system for the listed buildings. Unfortunately, too many have taken advantage of it. It used to be that repairs would be standard and improvements would be zero. Now this seems pretty harmless, but too many took this to the bank. They would advertise a repair job as an improvement. This way they could get the zero VAT rating. This worked for a while.

Once George Osborne caught onto what was happening, he changed things around. From this moment on, he categorized everything into the standard rating.

THE LEVEL PLAYING FIELD

When it comes to the VAT tax, self-builders and other professionals are boxed into the same category. When it comes to other taxes, the self-builders are not so lucky.

There aren’t that many taxes you will be hit with, once you make a profit. The only two you need to keep in mind are the following:

1) Capital Gains Tax
2) Income Tax

How are you affected by these two?

1) Income Tax—If you are professionally building homes for sale, you will have the income tax held against you.

2) Capital Gains Tax–If you buy and sell homes to let out or they are second-hand, you will have this tax to deal with.

If you are looking into your principal residences, you won’t have to deal with this.

OTHER TAXES CONSIDERED

What if you sell part of your garden for a new home? You will not be hit in the proceeds department.

TAX EMEMPTIONS

Now let’s look at the tax-exempt status for those who are self-builders. What happens when you build a home and move into it? What happens if the place is your principal residence? What if you sell it soon after the purchase?




It’s basically the world of serial self-building. It happens a lot in the UK. This also applies to those who go from one house to another. There is way to avoid the tax situation. There is way to claim the exempt status. All you have to do is claim the place as your primary dwelling. As long as you have done that, no one will hit you with anything.

Is there a set limit to how long you can claim a place as your own? To the best of our knowledge, there isn’t a set limit. There is a preferred time frame though. The time frame considered to be acceptable is one year. That is all you have to be living there. Once this year is up, you can find a new place.

In order to claim this tax-exempt status every time, this year has to be the earmark.

NO PROFIT
Factoring in this tax-exempt status is not about how long you live in a specific home. It’s about the idea of profit. Regulations want to make sure you didn’t acquire and build the place in hopes of making a profit. If this is the case, those exemptions won’t work.

No this can be said for anyone living here in Britain. The idea is not to make a big deal over it. It’s never a good idea to go into show tunes over how much money you have made, even if it’s all tax-exempt. People have been known to say the wrong words to the wrong people.

THE LONG RUN

Most don’t spend their whole lives going from one house to another. It does have it’s benefits though. You can build up some extra equity, while cutting down on the heavy mortgage rates. The only thing it will not do is bring in extra cash. This is not a reason to get into moving from house to house. It’s also not suitable in the bigger financial picture, especially if you want a family. It’s okay to do this when you are younger, but don’t make it a lifelong goal.

CONCLUSION

VAT and other taxes are an everyday issue with housing, whether you are a self-builder or you hire someone. The point is, do your research ahead of time. Know what taxes and VAT rating your home building falls under. The rest will take care of itself. Unfortunately taxes will always be there so you just need to factor these into your overall costs and budget.






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