Self Build VAT reclaim or company VAT reclaim?

[Gimp]

Hi all, I'm new here and in the early stages of planning a self build. I was wondering what are your thoughts of VAT reclaim. From what I see under the Self Build VAT Reclaim Scheme you can reclaim 20 percent VAT on all building supplies that are integral to the build at the end of the build from suppliers invoices. However, I have seen on the previous forum (ebuild) that some people set up companies, register for VAT and reclaim on all invoices e.g. architect, SE, etc as of course the invoice I would be billing presumably myself would be zero rated leaving surplus VAT on all the suppliers & services I had used to reclaim. I assume I have got this right? Plus apparently I can claim this back quarterly instead of at the end of the build. I'm not expecting to extensively use services as it's a fairly straight forward build, though of course this isn't guaranteed. So my question is do you guys think it's worth it setting up a company or just easier to use the Self Build Scheme? 

[reddal]

If you are building a house for yourself to live in then I would just do the normal self build VAT reclaim process.

If you are building a house as a commercial venture that you don't intend to live in then a company would make more sense.

Remember a company has to pay corporation tax etc which can complicate things.

- reddal

[Gimp]

Ah, you're right of course. I'm just thinking of this one to live in. Possibly it may lead on to others as a commercial venture, but maybe set one up then, use this one as a learning process and trial run to get the hang of things. Thank you for your advice, much appreicate it. 

Edited May 24, 2016 by Gimp

[Gimp]

Just a thought actually if anyone has any idea on the self billing thing if running a company. Presumably you would be looking to invoice yourself at the cost of any invoices minus the VAT to return a zero profit and hence avoid corporation tax. Apart from any tax avoidance issue I assume there may be an issue taking the VAT refund out of the business in terms of being taxed as a salary or a dividend? So thereby suggesting the VAT reclaim would be best spent on further materials/items to avoid this tax? 

[Jeremy Harris]

If you're intending to self build and live in the house for long enough for the HMRC to not suspect you're a "serial self-builder" then the self-build VAT process is slightly more beneficial in terms of your overall tax bill.  It does mean you don't get to reclaim VAT on materials you have purchased to include in the build until the end, but overall you're not going to have half as much hassle as you would setting up a company, borrowing money, doing the accountancy needed for that company to sell its output to a director at zero rate (not sure how you'd do that) and pay all the fees and company taxes, plus an accountant.

The self-build scheme means you can get goods and services that are supplied as a package zero rated, so you don't pay the VAT in the first place.  Basically, any VAT registered individual or company you have working on the build (but not surveyors, architects etc) can zero rate materials and labour. 

I suspect our build might not be untypical.  We had around £70k of ground works and services work, including a water borehole, and that was all zero rated, so we didn't pay VAT on it.  We had a build package of foundations and frame, and again that was zero rated.  We had windows supplied and fitted, so that was zero rated. We had the major landscaping, drive, soakaways etc zero rated.  All told, on a build that's cost over £200k (excluding the land) we have a total VAT reclaim on materials we purchased of around £11k.

[reddal]

I've heard of some people using companies to buy/build properties as a way of avoiding (evading?) income tax.

It sounds very dodgy to me and I wouldn't recommend it - but relies on the company already existing and having significant profits built up in it. ie typically someone runs a personal service company (IT contractor or similar) and doesn't pay themselves much salary or dividend for a few years so doesn't pay much income tax. Then their company braches out into property development - the company buys or builds a house using the built up profits. Then they just live in the house (maybe paying some nominal rent to the company) - and never paid a penny in income tax! Downside is that any gains made when the property is sold belong to the company so attract corporation tax - as opposed to being tax free as your main residence.

- reddal

 

[Trw144]

There's also a benefit in kind - you can't just live in a house and not pay the company any rent. Either you pay rent to the company or you pay tax on the "free rent" just the same as if you had taken that money as a salary.

I m in the position of building two houses - one as a self builder and one as a company. Assuming you are staying in the house then the self build route is the one to go for every time. The only benefit for the company route (which is far outweighed in terms of tax disadvantages, accountancy costs, and administration costs) is that you can claim your input vat back quarterly instead of at the end of the build.

 

[Gimp]

Thanks guys, that's made it a lot clearer so much appreciate it. I'm thinking from what you put the self build scheme looks the best and most straightforward way this time around. I intend to live in it afterwards not just to avoid capital gains but because I want to anyway. Like has been said I'm not sure on whether it's feasible for a company director to bill themself and how this would work so I think a discussion with an accountant would be needed on the best/possible way to work it. So for me for this build it all looks a little unnecessary to go the company route I'm thinking. 

[Ferdinand]

Just to note that if you have a company owning your house the HMRC have some detailed rules about differences between "development" and "investment" properties.

I am sure it can be done, but advice is needed.

Ferdinand