Lincolnshire project - Class Q and VAT query

[Ali F]

Hello

 

Thank you for allowing me to join this group.  We are in the very early stages of a Class Q project (we are looking to convert our barn into a 2 bed accommodation for elderly disabled parents to live - we are using an architect and drawings are complete).  

 

I had been led to believe that we are able to reclaim back part of the VAT by converting the barn into residential but now I am not so sure as we are going the Class Q route .. 

 

Has anyone reclaimed VAT on a Class Q project ? 

 

Many Thanks

Edited May 4, 2021 by Ali F
forgot to add something

[IanR]

Hi @Ali F , and welcome.

 

Yes, as a new residential unit you can reclaim the VAT on a Class Q, as I did myself. (This is assuming the new unit is not an Annex to an existing residential unit)

 

Keep all the receipts, making sure they have VAT showing as a separate amount, and claim at the end. Same process as for any other new build/conversion.

[Ali F]

  On 04/05/2021 at 13:34, IanR said:

Hi @Ali F , and welcome.

 

Yes, as a new residential unit you can reclaim the VAT on a Class Q, as I did myself. (This is assuming the new unit is not an Annex to an existing residential unit)

 

Keep all the receipts, making sure they have VAT showing as a separate amount, and claim at the end. Same process as for any other new build/conversion.

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Thank you Ian R for your prompt response.  When you say Annex do you  mean is it attached to the main house ?  if so no it isnt.

 

Also were you able to claim VAT back on mini sewage treatment , heat or air source pump and etc or is it just on the build .. 

 

Many Thanks

[IanR]

It doesn't need to be attached to be an "Annex" - it needs to be on its own Title to not be an Annex, otherwise it would be considered as an extension to the existing homestead and not a new residential unit.

 

Thinking about it, a Class Q is for a new Residential unit, so must be OK.

 

Yes, all listed are VAT deductible, with the possibility of RHI on the ASHP.

 

Edited to add:

Is CIL owing? Not sure where you stand with self-build exemption as you won't be living in it, but you should get "conversion" exemption if it's been in "continued lawful use for 6 months within the last 36 months prior to the application".

Edited May 4, 2021 by IanR

[Ali F]

  On 04/05/2021 at 13:43, IanR said:

It doesn't need to be attached to be an "Annex" - it needs to be on its own Title to not be an Annex, otherwise it would be considered as an extension to the existing homestead and not a new residential unit.

 

Thinking about it, a Class Q is for a new Residential unit, so must be OK.

 

Yes, all listed are VAT deductible, with the possibility of RHI on the ASHP.

 

Edited to add:

Is CIL owing? Not sure where you stand with self-build exemption as you won't be living in it, but you should get "conversion" exemption if it's been in "continued lawful use for 6 months within the last 36 months prior to the application".

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HI Ian R

Sorry I'm very new to this - what does CIL ( and RHI and ASHP) mean ?  

The barn does not have its own title, although our plans are for it to be a separate and self sufficient 2 bedroom accommodation, hope this will acceptable, would like to make sure we have everything correct on the plans to apply for reclaiming the VAT before we submit the plans for approval etc.

 

I have been googling to see if the are any guidelines / rules for Class Q and qualifying for "reclaiming VAT"  but cant find anywhere. 

 

Thank you

 

 

[jack]

Welcome to BuildHub @Ali F

 

Re: your VAT question, you may find you'll get a wider audience if you continue this discussion in the VAT sub-forum. Some members stick to their areas of interest and don't visit the new members sub-forum. You can open a new thread and post a link to this thread in it, to save you copying all the info above.

[Ali F]

  On 04/05/2021 at 14:22, jack said:

Welcome to BuildHub @Ali F

 

Re: your VAT question, you may find you'll get a wider audience if you continue this discussion in the VAT sub-forum. Some members stick to their areas of interest and don't visit the new members sub-forum. You can open a new thread and post a link to this thread in it, to save you copying all the info above.

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oh ok thank you ..  ill try to do that.

 

Thank you !

 

[IanR]

CIL - Community Infrastructure Levy = a Planning "tax" that many Planning authority's have now entered into, that allows for a standardised charge of £xxx.xx / sqr m of residential development for any new developments. There are exemptions allowed, that need to be in place before you commence the development. You'd normally receive a CIL notice around the same time you receive the planning application notification. If you've not heard of it it's probably because your LPA has not yet signed up to CIL, but worth double-checking.

 

RHI - Renewable Heat Incentive = a grant from the government to encourage use of technologies like ASHP, that is meant to reduce the capital cost of that technology to around the same as the fossil fuel alternatives.

 

ASHP - Air Source Heat Pump - I actually thought you'd mentioned it in your post, but I must have mixed it up with a post I was reading just before yours, otherwise I wouldn't have mentioned it.

 

Anyhow. Class Q is for a new Residential Unit, so is VAT deductible, and you will need to reference the Planning Application on your VAT reclaim at the end. The fact that you haven't yet divided it off on to its own Title I don't believe would effect it.

[Ali F]

  On 04/05/2021 at 14:29, IanR said:

CIL - Community Infrastructure Levy = a Planning "tax" that many Planning authority's have now entered into, that allows for a standardised charge of £xxx.xx / sqr m of residential development for any new developments. There are exemptions allowed, that need to be in place before you commence the development. You'd normally receive a CIL notice around the same time you receive the planning application notification. If you've not heard of it it's probably because your LPA has not yet signed up to CIL, but worth double-checking.

 

RHI - Renewable Heat Incentive = a grant from the government to encourage use of technologies like ASHP, that is meant to reduce the capital cost of that technology to around the same as the fossil fuel alternatives.

 

ASHP - Air Source Heat Pump - I actually thought you'd mentioned it in your post, but I must have mixed it up with a post I was reading just before yours, otherwise I wouldn't have mentioned it.

 

Anyhow. Class Q is for a new Residential Unit, so is VAT deductible, and you will need to reference the Planning Application on your VAT reclaim at the end. The fact that you haven't yet divided it off on to its own Title I don't believe would effect it.

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Thank you very much - I actually found the post with the acronym list .. very helpful.

We will be also looking into the ASHP too..   I'll check with our architects re the CIL as its not been mentioned as yet. 

 

Many thanks again for your help.

 

 

[kxi]

@Ali F

Labour-only and supply and fit work carried out by others on your conversion may also qualify for 5% VAT, as discussed in:

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section7

https://www.self-build.co.uk/our-guide-claiming-back-vat-self-build/

etc

 

You can claim all the VAT back anyway at the end anyway (assuming you qualify etc), but paying only 5% VAT upfront rather than 20% helps your cashflow during the build and reduces the 'risk' you have stored up with HMRC.

 

We've found so far that all contractors have been happy to charge only 5%, provided we sent them the right bits of paper & links justifying it before they sent any invoices. Make sure the service is one that qualifies for a reduced VAT rate (and ultimate refund) first though. See the link in the HMRC guidance about this. E.g. 'Professional services' such as architects don't qualify, neither does scaffolding. But things like demolition, groundwork, building, etc do.

 

CIL is important to establish as it can be expensive or it can be nothing. From what I remember, I think even self-build conversions under Class Q can be liable where 'new' floorspace is created, but it's worth checking in detail and then confirming in writing with the council (IF CIL applies at your council). 

[Roundtuit]

  On 04/05/2021 at 18:59, kxi said:

@Ali F

Labour-only and supply and fit work carried out by others on your conversion may also qualify for 5% VAT, as discussed in:

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section7

https://www.self-build.co.uk/our-guide-claiming-back-vat-self-build/

etc

 

You can claim all the VAT back anyway at the end anyway (assuming you qualify etc), but paying only 5% VAT upfront rather than 20% helps your cashflow during the build and reduces the 'risk' you have stored up with HMRC.

Expand  

 Not my area of expertise, but I'd double-check that.  I don't think you can pay 5% VAT and claim it back.

[Temp]

Yes you can on a conversation if its being converted to a separate dwelling. Not if can't be sold seperately to the existing house.

Edited May 4, 2021 by Temp

[kxi]

  On 04/05/2021 at 19:11, Roundtuit said:

 Not my area of expertise, but I'd double-check that.  I don't think you can pay 5% VAT and claim it back.

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Had me worried there, but checking the conversion VAT reclaim form I think confirms it, and the point about whether a conversion for relatives also qualifies. But this is my naïve interpretation and best to get it checked.

 

Can you reclaim VAT on self-build conversion invoices charged at reduced rate?

This implies that you can claim refund on reduced VAT rate work, if that rate was charged on the invoice.

 

Can you reclaim VAT on self-build conversion for your parents?

 

Both from the VAT431C form

https://www.gov.uk/vat-building-new-home/how-to-claim

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf

[newhome]

As noted above I would definitely check whether your barn is eligible for a VAT reclaim without a separate title. Read all of the notes in the claim form carefully so that you can make a decision, or seek professional advice if you are not sure. If your barn has been used as a garage to store vehicles that might make it ineligible I believe. 
 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf

 

 

[newhome]

  On 04/05/2021 at 20:07, kxi said:

But this is my naïve interpretation and best to get it checked.

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This is the bit that I’m not clear about 

 

You are not eligible to use the DIY Housebuilders Scheme if you:
• have converted a property that, because of a term in the Planning
Permission (or similar permission such as a Planning Agreement) cannot
be sold separately or used separately, 

[Temp]

  On 04/05/2021 at 13:13, Ali F said:

Thank you for allowing me to join this group.  We are in the very early stages of a Class Q project (we are looking to convert our barn into a 2 bed accommodation for elderly disabled parents to live - we are using an architect and drawings are complete).  

Expand  

 

I think the key here is to try and make it a totally self contained unit that  could be sold off as a separate dwelling in the future. Eg spell that out in the part q paperwork. You don't have to split the title if you dont want to but you should ensure any planning grant doesn't preclude it. 

 

Not only does that make it possible to reclaim the VAT but adds significant value for the future.

[newhome]

If you can stomach reading this one it is a fairly similar case that went to tribunal with a separate dwelling having been built in the garden for parents. The tribunal judgement seems to hinge on the fact that the planning permission didn’t say ‘annex’ or state that the property could not be sold separately from the main dwelling. If your planning permission states either of those things it’s worth getting it altered. And obviously being Class Q you very definitely must not deconstruct the building whilst it’s being developed (that’s not a VAT issue but a Class Q planning issue). You must maintain the structure throughout. 
 

https://forum.buildhub.org.uk/topic/6851-a-guide-to-the-vat-reclaim-process/?do=findComment&comment=163473

 

 

 

[IanR]

  On 04/05/2021 at 20:13, newhome said:

This is the bit that I’m not clear about 

 

You are not eligible to use the DIY Housebuilders Scheme if you:
• have converted a property that, because of a term in the Planning
Permission (or similar permission such as a Planning Agreement) cannot
be sold separately or used separately, 

Expand  

 

This is the bit to me that actually makes it clear. Class Q PD is for the creation of a new Residential unit, so there is no term in the Planning Permission that stops it being sold separately. It doesn't need to "yet" be separated off on to its own Title, it just needs to be capable of being.

 

Conversions can also make use of the 5% VAT rate for Supply and Install work, t help cashflow. 

 

 

[newhome]

  On 04/05/2021 at 20:26, IanR said:

Class Q PD is for the creation of a new Residential unit, so there is no term in the Planning Permission that stops it being sold separately. It doesn't need to "yet" be separated off on to its own Title, it just needs to be capable of being.

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Then if that’s the deal with Class Q it should certainly make it eligible for the scheme. 

[gc100]

My build is class Q . I was always lead to believe we can only claim back 15% of the VAT and not the full 20%

We’ve not done our claim yet

[IanR]

I believe this is a mix-up of the rules.

 

Conversions are subject to a 5% VAT rate for supply and install, rather than the 0% of a New Build. However that 5%, + the full 20% of supplied goods can then be reclaimed at the end.

[newhome]

  On 05/05/2021 at 07:13, gc100 said:

My build is class Q . I was always lead to believe we can only claim back 15% of the VAT and not the full 20%

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As @IanR says this is a common misunderstanding. You must be billed @ 5% for all eligible labour and supply and fit work, and your supply only materials will be billed to you with standard VAT. When you do your claim you can claim back the 5% billed for labour and supply & fit, and the full 20% paid on materials.
 

Unlike new builds where labour and supply & fit are zero rated, all conversions and properties empty for 2 years are billed @ 5% VAT initially but you can still reclaim this as you are creating a new dwelling (subject to you meeting all of the scheme rules). Not all of the projects billed at 5% will be eligible for a full VAT reclaim and the rules are complex so if all are billed @ 5% it avoids trades having to determine whether to zero rate certain conversion works or not. Have a read of the claim form and notes. You will see that there is a separate section of the form for reclaiming the 5%. 
 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf
 

 

[Ali F]

  On 04/05/2021 at 18:59, kxi said:

@Ali F

Labour-only and supply and fit work carried out by others on your conversion may also qualify for 5% VAT, as discussed in:

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section7

https://www.self-build.co.uk/our-guide-claiming-back-vat-self-build/

etc

 

You can claim all the VAT back anyway at the end anyway (assuming you qualify etc), but paying only 5% VAT upfront rather than 20% helps your cashflow during the build and reduces the 'risk' you have stored up with HMRC.

 

We've found so far that all contractors have been happy to charge only 5%, provided we sent them the right bits of paper & links justifying it before they sent any invoices. Make sure the service is one that qualifies for a reduced VAT rate (and ultimate refund) first though. See the link in the HMRC guidance about this. E.g. 'Professional services' such as architects don't qualify, neither does scaffolding. But things like demolition, groundwork, building, etc do.

 

CIL is important to establish as it can be expensive or it can be nothing. From what I remember, I think even self-build conversions under Class Q can be liable where 'new' floorspace is created, but it's worth checking in detail and then confirming in writing with the council (IF CIL applies at your council). 

Expand  

 

Thank you very much for your information.  I have checked on line for the CIL with the local council and below is what I found ..   not sure if it applies to us as our barn will be 130 sq m. 

Demolition will be handy if included as we have an asbestos roof that we hope we can replace ...

 

Minor Developments: Less than 10 residential units and where the gross floor space to be built is up to 1,000 square metres, or where the site area is less than 1 hectare. Where the number of dwellings to be constructed or floor area proposed is not given in the application, a site area of less than 0.5 hectares is classed as a minor development.

£1,500

[Ali F]

  On 04/05/2021 at 20:07, kxi said:

 

Had me worried there, but checking the conversion VAT reclaim form I think confirms it, and the point about whether a conversion for relatives also qualifies. But this is my naïve interpretation and best to get it checked.

 

Can you reclaim VAT on self-build conversion invoices charged at reduced rate?

This implies that you can claim refund on reduced VAT rate work, if that rate was charged on the invoice.

 

Can you reclaim VAT on self-build conversion for your parents?

 

Both from the VAT431C form

https://www.gov.uk/vat-building-new-home/how-to-claim

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf

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Thank you very much, that is reassuring..  I will have a read of the links, thank you for sharing.

 

 

[Ali F]

  On 04/05/2021 at 20:09, newhome said:

As noted above I would definitely check whether your barn is eligible for a VAT reclaim without a separate title. Read all of the notes in the claim form carefully so that you can make a decision, or seek professional advice if you are not sure. If your barn has been used as a garage to store vehicles that might make it ineligible I believe. 
 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/828048/VAT431C_form_and_notes__1_.pdf

 

 

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luckily its  not used for storage of cars ..    

 

Thank you