Lee Sharpe looks at the mechanism designed to help people to reclaim VAT costs on building their own home, and some tips and traps for those hoping to make the best of their claim.
VAT on construction can be complex. For example, the VAT treatment of building a simple wall as part of a project might depend on:
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the category of building – residential, commercial, etc.;
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whether it is a repair to an existing property or new development;
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whether it merely extends an existing property or counts as a separate property in its own right; or
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its intended use once the work is complete.
It will also depend on whether we are considering the property asset overall or work being done on the property. For the purposes of this article, let’s assume we are dealing with work to create a new, single-household residential property or dwelling.
Construction services: What is being supplied?
Readers who are unfamiliar with VAT (and particularly on construction) may be surprised to find that the scope of ‘construction services’ is quite wide.
For example, if you pay a builder to build a brick wall as part of a house, this will not be a supply of goods – the bricks – but rather the supply of bricklaying services that just happens to involve the goods and materials of bricks and mortar. The fact that the cost of the materials might well exceed the actual labour component is largely irrelevant. What matters is that the building materials comprised in that service are:
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incorporated into the building;
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of a type that is ordinarily incorporated by builders in that type of building, however:
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most fitted furniture is excluded other than kitchen furniture (although things like airing cupboards may qualify);
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most appliances are excluded other than space or water heaters, burglar or fire alarms; and
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carpets and curtains are also excluded from treatment as building materials.
Broadly, if I buy materials directly from a supplier, the supplier must charge VAT at the standard rate of 20%. If I pay a builder for materials as part of the supply of construction services, as above, the builder will charge VAT on the materials element according to the rate applicable to the construction services they are supplying.
Why does it matter?
The sale of the freehold (or long lease) in a new dwelling is generally zero-rated. Strictly, the seller is charging VAT, but at 0% - which means that developers can generally still recover the VAT on their costs (e.g., such as the bricks and mortar that they buy from builders’ merchants) even if they are charging zero VAT to the new homeowner. This should eliminate most of the VAT cost otherwise chargeable on someone buying a new house.
This is all fine; but what about when somebody wants to manage their own self-build, and buys some or all the eligible materials themselves, directly from merchants, etc? Builders will commonly source their basic materials but expect the client to source their own decorative elements, such as bathroom and kitchen fittings. If I, as a homeowner, were to pay £5,000 for sinks, bath, shower cubicle and shower, then a showroom would charge me £1,000 in VAT. But all of these would be eligible as building materials, as fittings, etc., (rather than fitted furniture). The special DIY Housebuilder Scheme allows me to reclaim the VAT on these costs from HMRC, basically to put a self-build on the same VAT cost footing as if buying a finished new home (almost) VAT-free from a developer.
The claim process
The private homeowner makes a claim directly to HMRC (perhaps via an accountant or agent). With narrow exceptions, the property in question must be:
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new build;
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a conversion from non-residential use (or derelict or not used as a dwelling for at least 10 years);
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a replacement for an existing dwelling that has been demolished to ground level (retaining no more than foundations, cellars, or similar, although sometimes external facades may also be kept); or
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extending an existing building, to create an additional dwelling in the new space.
The claim can be made online or on paper and must include:
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plans and planning permission for a dwelling;
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a building regulations completion certificate; and
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be submitted no more than six months after construction is completed (it was a three-month window for completions before 3 December 2023).
In the good old days, one had to provide all invoices/receipts as evidence of VAT incurred as part of the application, but HMRC now wants a summary of costs (using its template) and will then ask for specific copy VAT documentation, if deemed appropriate (i.e., high-value or unusual items).
Common traps
When is a building ‘complete’? – Self-builds can be arduous, and circumstances may dictate that the homeowner moves in uncommonly early (or late).
In Sansom v HMRC [2020] UKFTT 198 (TC), the taxpayer moved to the property in 2013, but did not achieve formal completion until more than five years later in 2018. HMRC refused to accept his claim made shortly after the formal certificate, arguing that the property had clearly been habitable several years beforehand, so Mr Sansom was too late. Observing that HMRC usually insisted on a completion certificate, the First-tier Tribunal (FTT) found that HMRC could accept alternative evidence in lieu of a certificate but could not refuse to accept a claim made in time against a formal completion certificate.
Is it a new build or an extension? – In Dunne v HMRC [2023] UKFTT 88 (TC), the claimant had originally gained planning approval for a two-storey side extension to his existing home but ultimately created a free-standing ‘bungalow’ without the planned connecting corridor. The FTT upheld HMRC’s refusal of the claim; permission had been granted for an extension, not a separate dwelling; moreover, the council still referred to the new property as “an extension…not attached to your main house”.
A separate garage may be eligible for inclusion in a claim, but only if built at the same time as the (qualifying) new dwelling, and for use with the dwelling. A garage built later will not be eligible.
Only ONE claim? – HMRC insists that it will pay out against only one DIY claim; it will refuse any later or ‘mop-up’ claims. In Ellis & Bromley v HMRC [2021] UKFTT 0343 (TC), the FTT disagreed:
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There was nothing in the primary legislation (VATA 1994, s 35) to limit a new dwelling project to a single claim; HMRC’s subordinate VAT regulations that included that requirement were therefore ‘ultra vires’.
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Moreover, the claimants strictly made their initial DIY claim ‘too early’ as the property was incomplete, so the second claim was the only valid claim made.
Notwithstanding, HMRC continues to insist that only a single claim can be made.
Restricted payout where VAT charged incorrectly? – HMRC likewise insists that it will refuse to reimburse any VAT that was not charged at the correct rate for the work that was done, stating that it is the claimant’s responsibility to check that their builders have charged the appropriate rate of VAT or the claim will be restricted accordingly.
However, in Poulton v HMRC [2025] UKFTT 240 (TC), the FTT refused HMRC’s request to strike out the taxpayer’s claim for VAT on invoices for groundwork that should have been zero-rated but had been charged instead at the standard 20% rate. The tribunal felt that Mr Poulton was potentially correct in trying to claim against HMRC (broadly based on ‘old’ pre-Brexit European law – referred to as the Reemstma case – that he should be entitled to claim from his domestic tax authority where it was impossible or “excessively difficult” to get his builder to re-do their invoice without charging VAT; here, they had gone into liquidation). The FTT was also highly critical of HMRC’s conduct in the case; note, however, that (at the time of writing) the courts have not yet decided Mr Poulton’s claim itself, merely that he has a reasonable case that should be heard.
Conclusion
A VAT DIY housebuilder claim can be quite valuable in recovering significant VAT costs – largely on materials. But there are numerous important rules, and expert guidance is strongly recommended.
