VAT Claim for Conversion in Scotland

[AndrewR]

I am just starting out on restoring an old croft house in the Highlands and by chance I found out that I appear to be able to claim back VAT. I am doing most of the work myself.

It appears from this forum that this is a big topic, and I apologise if the following are simple questions or have been answered before. I have tried to search for a while through the posts.

Can someone help me answer the following:

1. Can VAT be reclaimed for the percolation test?

2. At what point do I claim? The government form states that it must be 'within 3 months of the building works being completed, and you can only submit once'. So, does this mean at the end of ALL building works, i.e. when the whole house is done and is habitable, or does it mean each specific component of the building work, i.e. the percolation test?

3. My cottage is derelict and has not been used as a dwelling or other building for as long as locals can remember. It is not currently registered with the local authority for Council tax, and I am having to put in a 'change of use' application. However, I see that I need to provide evidence that it is not been inhabited for at least ten years, but how do I prove this? Do I have to ask the council to write me a letter to say that they have no records of the building, and if so are they willing to do this?

4. I see that there is a 3 month deadline for submissions, and that I need to send 'proof that the building work is finished'. As above, what proof do I need and where do I obtain it?

Thanks,

Andrew

[recoveringbuilder]

You can’t claim for the percolation test, you get one claim at the end of the build so have to keep all the vat receipts, the end is when building control are satisfied that all the work has been completed to their satisfaction however I think the rules are different for a restoration than a complete new build. If you look on their website you will get all the information there.

[newhome]

Welcome. There is a guide to the VAT reclaim scheme in a sub forum within this forum that is available to regular posting members.. You generally need a certain number of posts to access it but maybe one of the admins @PeterW or @MikeSharp01 can allow you to see it. If they do then you can view it here.
 

 

The first few posts explain most of it. it’s written with a new build in mind but much of it will apply to a conversion too. The main difference is that for a conversion any labour or supply & fit arrangements will be charged at 5% instead of zero rated as new builds are. If your conversion meets the rules you can reclaim the 5% through the reclaim process, and you can reclaim the VAT on materials (note that it’s for materials only) purchased yourself. 
 

I think there are some other things to consider with regards to croft land and the position with VAT.

 

@Thedreamer has just finished a new build on croft land and he may be able to advise on how the reclaim regs are applied in this scenario as I’m not sure. 
 

In terms of how to prove that the property hasn’t been lived in for 10 years or more maybe you can get a letter from the council confirming that the house has never been subject to council tax due to it being inhabitable since before council tax began? That would be my first port of call anyway. I don’t see why they wouldn’t be willing to confirm that in a letter since you will be providing them with council tax revenue at the end of the project. 
 

 

 

[Temp]

Careful..  The self build reclaim scheme is only for people doing a new build or a conversion.

 

There are ways an existing house can qualify for zero rating (for example if its been empty for >10 years and is still unoccupied). However I don't think there is a reclaim scheme for that. I believe you have to use a VAT registered builder who can zero rate everything to you. If you buy anything yourself you can't reclaim it.

 

Edit: or have I got this wrong?

 

Edit2: Yes I have got it wrong. It can be reclaimed same as a conversion on VAT Notice 431 C.

 

 

 

Edited October 1, 2020 by Temp

[Temp]

The standard way to reclaim VAT is to finish the house, get a Completion Certificate from the BCO (think its a Habitation Certificate in Scotland) then you have three months from that date.

 

However if you do something "non-standard" such as move in half way through and then take many years to get the completion certificate then HMRC can get a bit awkward.

[Thedreamer]

8 hours ago, AndrewR said:

I am just starting out on restoring an old croft house in the Highlands and by chance I found out that I appear to be able to claim back VAT. I am doing most of the work myself.

It appears from this forum that this is a big topic, and I apologise if the following are simple questions or have been answered before. I have tried to search for a while through the posts.

Can someone help me answer the following:

1. Can VAT be reclaimed for the percolation test?

2. At what point do I claim? The government form states that it must be 'within 3 months of the building works being completed, and you can only submit once'. So, does this mean at the end of ALL building works, i.e. when the whole house is done and is habitable, or does it mean each specific component of the building work, i.e. the percolation test?

3. My cottage is derelict and has not been used as a dwelling or other building for as long as locals can remember. It is not currently registered with the local authority for Council tax, and I am having to put in a 'change of use' application. However, I see that I need to provide evidence that it is not been inhabited for at least ten years, but how do I prove this? Do I have to ask the council to write me a letter to say that they have no records of the building, and if so are they willing to do this?

4. I see that there is a 3 month deadline for submissions, and that I need to send 'proof that the building work is finished'. As above, what proof do I need and where do I obtain it?

Thanks,

Andrew

 

 

I think people used to get in problems when they had planning agreements applied to the land to get secure planning permission.

[Thedreamer]

58 minutes ago, Temp said:

The standard way to reclaim VAT is to finish the house, get a Completion Certificate from the BCO (think its a Habitation Certificate in Scotland) then you have three months from that date.

 

However if you do something "non-standard" such as move in half way through and then take many years to get the completion certificate then HMRC can get a bit awkward.

 

In Scotland we have both, habitation certificate and a completion certificate. You have three months from the date of the document you submit as evidence with the claim.

[AndrewR]

Thanks,

I queried the VAT added to the percolation test invoice with groundwork contractor. He said that I need to supply him with "the exemption form". I've spent a long time looking into this, and seemingly made worse by govt websites, when I try to find answers to one question, multiple new questions arise. Two questions:

1. How does one manage all this information about VAT? Are their accountants who are employed to do it, or is it just one more additional thing to fall on the self builder's shoulders?

2. Can someone please tell me what this "exemption form" is and where I get it from? The groundwork contractor is like the govt website: I ask him one question and he comes back with another question all with as few sentences as possible and with as few words as possible in each sentence.

Andrew

[scottishjohn]

9 minutes ago, AndrewR said:

Thanks,

I queried the VAT added to the percolation test invoice with groundwork contractor. He said that I need to supply him with "the exemption form". I've spent a long time looking into this, and seemingly made worse by govt websites, when I try to find answers to one question, multiple new questions arise. Two questions:

1. How does one manage all this information about VAT? Are their accountants who are employed to do it, or is it just one more additional thing to fall on the self builder's shoulders?

2. Can someone please tell me what this "exemption form" is and where I get it from? The groundwork contractor is like the govt website: I ask him one question and he comes back with another question all with as few sentences as possible and with as few words as possible in each sentence.

Andrew

I would forget it   and move on - as I think it could be classed as a professional fee --its a test --not actual construction - so not relcaimable 

  my arhcitect told me something interesting about new changes to VAT reclaims 

If you are vat registered --then you pay it and reclaim it -- no need to got HMRC -- If that is correct that should allow alot more things to be claimed 

t 

 

 I cannot say this is gospel --but worth some checking out-- some corvid  thing to take load off HMRC maybe 

Edited October 2, 2020 by scottishjohn

[Temp]

Dealing with VAT isn't that hard once you understand the rules.

 

* Materials you buy - insist on a vat receipt so you can reclaim it.

* Supply and fit - zero rated to you.

* Labour - zero rated to you.

* Professional services - standard rated not reclaimable.

 

Put vat receipts in ring binders (I used plastic sleeves to hold them).

 

Create spreadsheet with same headings as the reclaim form and keep it up to date. May help to number receipts.

 

If in doubt about something ask here.

 

If necessary ask for quotes to be corrected to show zero vat before you accept them.

[AndrewR]

Thanks both of you.

So Temp, regarding your last sentence, why do I ask for quotes to show zero VAT? Are you suggesting that I shouldn't pay VAT on some things at point of purchase? Or is it merely that I pay the VAT at point of purchase but the invoice shows what VAT I have paid so that I have it recorded for my subsequent VAT claim at the end of the build?

So I think the consensus is that the percolation test is not VAT reclaimable?

Andrew

 

[recoveringbuilder]

The vat is very simple to work out once you get your head round it. Everything you buy make sure you have a vat receipt for (this is a receipt with the suppliers vat registration number on it).Things which are classed as services (architect etc) you will pay vat on but cannot reclaim. Don’t know if the collective have come to any conclusion about how much you will have to pay in terms of vat to tradesmen but in new build anything that is supply and fit(windows, kitchen etc) should be zero rated.

[AndrewR]

Thanks again for the advice on VAT in general.

In my original post I mentioned the percolation test. The groundwork contractor charged VAT at 20% and when I queried this he asked for an exemption certificate.

I only started looking into this whole new aspect of my self build yesterday. I read the HMRC 'VAT refunds for DIY housebuilders claim form and guidance notes'. These referred to me being able to claim back VAT at the end of the build, which people here have kindly clarified. What they also mention is that if the contractor has not charged VAT at the correct rate then I can only claim back the correct rate. By this I understand it refers to some works which have a 5% VAT rating as opposed to the 20% rating. It also recommends caution and refers people to Notice 708.

Now, I have looked at Notice 708 and section 7 appears to apply. It states that 5% VAT should be applied, since it includes:

 

"...works within the immediate site of the premises being converted that are in connection with the:

• means of providing water, power, heat or access
• means of providing drainage or security
• provision of means of waste disposal"

So, can someone please advise on whether I am interpreting this correctly?

Andrew

[Temp]

2 hours ago, AndrewR said:

What they also mention is that if the contractor has not charged VAT at the correct rate then I can only claim back the correct rate. By this I understand it refers to some works which have a 5% VAT rating as opposed to the 20% rating.

 

Ok so the first point is what happens if you are incorrectly charged VAT by a contractor. Lets say the electrician charges 20% VAT and you pay it. HMRC would see that as an error and would not allow you to reclaim the over paid VAT from HMRC.  That is assuming they spot the error.

Edited October 2, 2020 by Temp

[Temp]

I'm afraid I might have confused you with this post I made above..

 

3 hours ago, Temp said:

Dealing with VAT isn't that hard once you understand the rules.

 

* Materials you buy - insist on a vat receipt so you can reclaim it.

* Supply and fit - zero rated to you.

* Labour - zero rated to you.

* Professional services - standard rated not reclaimable.

 

Put vat receipts in ring binders (I used plastic sleeves to hold them).

 

Create spreadsheet with same headings as the reclaim form and keep it up to date. May help to number receipts.

 

If in doubt about something ask here.

 

If necessary ask for quotes to be corrected to show zero vat before you accept them.

 

That's the situation for a NEW BUILD for a CONVERSION (which I now believe includes a property empty for 10 years) the bullet points should be..

 

* Materials you buy - insist on a vat receipt so you can reclaim all 20%.

* Supply and fit - 5% charged to you and you can reclaim it.

* Labour - 5% charged to you and you can reclaim it.

* Professional services - standard rated not reclaimable.

 

The end result is the same for a conversion and a new build it's just the paperwork is different.

 

 

[Temp]

2 hours ago, AndrewR said:

Now, I have looked at Notice 708 and section 7 appears to apply. It states that 5% VAT should be applied, since it includes:

 

"...works within the immediate site of the premises being converted that are in connection with the:

• means of providing water, power, heat or access
• means of providing drainage or security
• provision of means of waste disposal"

So, can someone please advise on whether I am interpreting this correctly?

Andrew

 

Section 7 covers "Reduced rating the conversion of premises to a different residential use" which I don't think applies to renovation of an empty house. I think that section is mostly applicable to houses being converted to flats.

 

However there is similar wording in earlier sections..

 

3.3.4 Work closely connected to the construction of the building

Subject to paragraph 3.3.6, your work is closely connected to the construction of the building when it either:

(a) allows the construction of the building to take place, such as when you:

• demolish existing buildings and structures as part of a single project to construct a new building or buildings in their place (the granting of a right to remove materials is not the supply of demolition services and is standard-rated)
• provide or improve an access point to a building site to allow deliveries to be made
• carry out ground works (including the levelling and drainage of land) as part of the process of constructing a new building or buildings in its place
• provide site clearance or ‘builders’ clean’ services
• secure the site

(b) produces works that allow the building to be used, such as works in connection with the:

• means of providing water and power to the building (this can extend to the work required to make the connection to the nearest existing supply)
• means of providing within the development site access to the building (for example roads, footpaths, parking areas, drives and patios)
• means of providing security (such as walls, fences and gates - but note that most electrical appliances are always standard-rated, further information is in paragraph 13.6)
• provision of soft landscaping within the site of a building (such as the application of topsoil, seeding with grass or laying turf)

The planting of shrubs, trees and flowers would not normally be seen as being ‘closely connected…’ except to the extent that it’s detailed on a landscaping scheme approved by a planning authority under the terms of a planning consent condition. This does not include the replacement of trees and shrubs that die, or become damaged or diseased.

It’s not possible to produce an exhaustive list of services that are closely connected to the construction of the building, and each case not included in (a) and (b) must be looked at on its own merits.

You need not be the main contractor in order for your supplies to be considered to be ‘works closely connected…’. You can be a subcontractor or another contractor.

 

 

and 

 

3.3.6 Services carried out before or after the construction of the building

If you carry out services either before or after the physical construction of the building takes place, they can only be seen as closely connected if there’s a close connection between when they’re performed and when the physical construction of the building takes place.

Services described in paragraph 3.3.4 may be zero-rated (subject to the conditions in paragraph 3.1.2) where, for example:

• civil engineering services are supplied to a landowner for the purposes of servicing a building plot and it’s clear that the construction of a building that qualifies for the zero rate will take place shortly afterwards
• soft landscaping work is carried out after the building has been completed, where those works have been delayed due to adverse weather conditions

Services in paragraph 3.3.4 are standard-rated where, for example:

• site investigation or demolition work is carried out before planning permission for the construction of a building that qualifies for the zero rate has been granted
• the services for a building (water, electricity) are installed on land which is to be sold as building land and where it’s not clear that the construction of a building that qualifies for the zero rate will take place shortly afterwards
• the work is delayed until after the building is complete owing to an insufficiency of funds

 

[AndrewR]

Thanks. So do you agree that according to Notice 708 the groundwork for drainage done by a contractor (in this case for the percolation test) should be rated at 5%?

[newhome]

2 hours ago, AndrewR said:

Thanks. So do you agree that according to Notice 708 the groundwork for drainage done by a contractor (in this case for the percolation test) should be rated at 5%?

To be honest sometimes it depends what the tradesperson will agree to. You really need to agree the VAT rate when you engage them because some won’t reduce or zero rate (for a new build) the VAT even if it’s clearly eligible as they just don’t want the hassle on their VAT return. 
 

Perculation test is a bit of a grey area in truth so see if you can get the VAT reduced to 5% but accept that you may not. 
 

There was a similar discussion here:

 

 

[AndrewR]

The contractor changed his invoice and has charged VAT at 5%. By my interpretation of Notice 708, it is clear that a reduced VAT rating for groundworks (for drainage, power, waste, etc) should be applied.

Andrew

[AndrewR]

Has anyone ever tried (and been successful) with getting renewable energy suppliers to charge 5% VAT? It seems quite clear that this is included in Notice 708, i.e. Section 7.6 -

"You can also reduce rate works within the immediate site of the premises being converted that are in connection with the:

• means of providing water, power, heat or access"

I've just tried to buy some solar panels and asked for 5% VAT, applied but the seller didn't think it could be done. They had never been asked this before, and after some searching they responded with reference to another piece of guidance: https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086#para2-15

The hyperlink quoted above appears to me to only be applicable to existing buidlings whereas Notice 708 is for Construction and Conversion, see section 2.8. Am I correct?

If I am, and if anyone knows of a solar panel supplier who has the guts to apply this VAT reduction, would you please advise here?

Thanks,

Andrew

[newhome]

2 hours ago, AndrewR said:

Has anyone ever tried (and been successful) with getting renewable energy suppliers to charge 5% VAT?

 
Are you asking them to supply the goods or supply and fit? 
 

 

[AndrewR]

On 18/12/2020 at 17:47, newhome said:

 
Are you asking them to supply the goods or supply and fit? 
 

 

Supply only.

[newhome]

4 hours ago, AndrewR said:

Supply only.

Then it’s 20% VAT. The term ‘works’ means installation, not equipment on a supply only basis. If your conversion is eligible for a VAT reclaim you can reclaim the VAT paid via the reclaim scheme. 
 

 

[AndrewR]

2 hours ago, newhome said:

Then it’s 20% VAT. The term ‘works’ means installation, not equipment on a supply only basis. If your conversion is eligible for a VAT reclaim you can reclaim the VAT paid via the reclaim scheme. 
 

 

Thanks. Can you please direct me to where this is explicitly stated by the act?

Andrew

[AndrewR]

On the VAT Refunds for DIY Conversions form (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf)  it states on page 16 that solar panels incorporated into the building can be claimed for, if you are a DIY builder. Therefore on goods I purchase and install they are eligible. Are you saying therefore that the supplier has to charge VAT at 20% and I claim 15% of this back (since the project is reduce rated at 5%)?

What confuses me is when the claim form guidance states that VAT must by applied by the seller at the correct rate otherwise it cannot be reclaimed: https://www.gov.uk/vat-building-new-home/how-to-claim

Andrew