VAT question on two derelict blockwork structures

[Nickjj83]

Hi all,

 

We have recently purchased a plot of land with two existing blockwork structures on (previously stable blocks but more like garages) which we are converting into a single dwelling.

The two existing structures are simple in their construction, blockwork walls, concrete slab floors and corrugated roofing. Due to costs we aim to retain and modify the structures (insert new openings for windows/insulate/new roofs etc) and create a new glazed link between the two.

I am unsure whether this project would be treated as a new build at 0% Vat or 5% because they were previously used agricultural purposes.

I would be interested in your thoughts.

Thanks 

[JamesP]

I think you have to get down to the slab only as it will not be classed as a new build if existing walls, roof retained. 

My brother partially demolished a bungalow then was informed he could not reclaim the vat so demolished the rest but kept the existing slab.

He just got a 22k refund.

Edited July 23, 2018 by JamesP

[PeterW]

The rules from HMRC are more complex with conversions - especially from agricultural buildings. 

 

Firstly is this being done as a conversion from agricultural barns or were these stables ..? 

 

Secondly what does the planning permission say ..?? Was it for a conversion or new build ..?

[Russell griffiths]

got Any pics. 

[Temp]

I believe you are only allowed to retain the front wall and foundations. Otherwise it's a conversion. What does your planning permission say? Convert or knock down and rebuild?

 

If it's a conversion your builder should charge 5% (on both materials and Lab) but you can reclaim this using...

 

https://www.gov.uk/government/publications/vat-refunds-for-diy-housebuilders-claim-form-and-notes-for-conversions-vat431c

 

Edit: I'm in a rush to go out but... Do not refer to it as a garage anywhere if there is a danger the Vat man might consider it part of an existing dwelling and will reject your claim.

 

Edited July 24, 2018 by Temp

[PeterW]

25 minutes ago, Temp said:

I believe you are only allowed to retain the front wall and foundations. Otherwise it's a conversion.

 

Its even more complex than that !! The wall/foundation rule only applies to a domestic property conversion, not an agricultural conversion. For agricultural purposes you can retain all structural elements.

 

Confused yet..? 

[Nickjj83]

Very!!  But from what I have been reading online I was confused anyway!

 

That's a good point about the planning permission as it clearly states conversion.  Therefore I'm thinking it will be charged a 5% but with an option to claim this back via VAT refund for DIY housebuilders conversion form?  The conversion is from blockwork stables to new family dwelling.

[PeterW]

Are the blockwork stables in the curtiledge of an existing dwelling..?? If so, they may be classed as ancillary to the domestic dwelling so you may get charged full whack VAT and not be able to claim back.

[newhome]

If the current buildings have been used as a garage (since you mention garages above) even if not originally for that purpose they won't be eligible. See the section from the VAT notice here:

 

Examples of a ‘non-residential conversion’ include the conversion of:

a commercial building (such as an office, warehouse, shop)

an agricultural building (such as a barn), or

a redundant school or church

into a building ‘designed as a dwelling or number of dwellings’.

The conversion of a garage, occupied together with a dwelling, into a building designed as a dwelling is not a non-residential conversion.

The term ‘garage’ not only covers buildings designed to store motor vehicles but also buildings such as barns, to the extent that they are used as garages.

However if it can be established that the garage was never used to store motor vehicles or has not been used as a garage for a considerable length of time prior to conversion, its conversion into a building designed as a dwelling can be a non-residential conversion.

 

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction

 

 

 

 

[PeterW]

14 minutes ago, newhome said:

However if it can be established that the garage was never used to store motor vehicles or has not been used as a garage for a considerable length of time prior to conversion, its conversion into a building designed as a dwelling can be a non-residential conversion.

 

Been there... This is one I know intimately, and basically HMRC required sworn affidavits from previous owners that there had never been a vehicle stored "even for 24 hours" in the garage in the past 10 years, and they "may accept" that as evidence...

 

So it was just easier to use non-vat registered suppliers and swallow the VAT hit on materials..!

[newhome]

2 minutes ago, PeterW said:

"even for 24 hours" in the garage in the past 10 years

 

 someone save us from such totalitarian nonsense please!! WTF!! 

[PeterW]

Good innit..!! I’ve got the letter somewhere... mentions “penalties for incorrect information provided” and “fraudulent claims”..... ?

[newhome]

5 minutes ago, PeterW said:

mentions “penalties for incorrect information provided”

 

HMRC are starting to do this more often for DIY claims it seems. Fines where someone tried to claim a refund and wasn't eligible (wasn't a cut and dried case so not amazingly easy for the person to have judged eligibility), fines where the accountant put in more invoices than they could claim again (so for supply and fit where VAT was incorrectly charged). These fines are often being overturned on appeal it seems but the tribunal is taking 15 months to make a decision according to the more recent case listed. 

 

 

[PeterW]

As someone who’s been on the back end of a badly run HMRC investigation I can assure you they are a law unto themselves .....

[newhome]

I could however sign an affidavit for both this house and the previous house with respect to a car being stored in either garage because both garages have been so full of crap a car would never have fitted in either for even 24 hours! 

 

 

[Temp]

On ‎24‎/‎07‎/‎2018 at 10:24, PeterW said:

 

Its even more complex than that !! The wall/foundation rule only applies to a domestic property conversion, not an agricultural conversion. For agricultural purposes you can retain all structural elements. 

 

Confused yet..? 

 

Have you got a reference for this?  

 

I've looked at the notes that accompany the reclaim forms 431NB and 431C.

 

The new build form 431NB doesn't mention agricultural buildings (at least a search for "agri" gets no hits) and its quite clear at the bottom of page 4 and top of 5 what you can/cant retain and still qualify as a new build.

 

The conversion form 431C only mentions agricultural buildings in one place and there it's only talking about eligibility criteria (eg must not be a dwelling already).

[Temp]

 

On ‎24‎/‎07‎/‎2018 at 14:16, Nickjj83 said:

That's a good point about the planning permission as it clearly states conversion.  Therefore I'm thinking it will be charged a 5% but with an option to claim this back via VAT refund for DIY housebuilders conversion form?  The conversion is from blockwork stables to new family dwelling.

 

That's my understanding.

 

A builder should charge you 5% on labour and materials he supplies (even if he pays 20% on materials from a builders merchant).

Any material you buy yourself from a builders merchant or elsewhere will be charged at 20%. (or perhaps 21% if you order from Belgium)

 

All of the VAT you pay can be reclaimed using Form 431C. So overall both a conversion and a newbuild end up zero rated, it's just a different process and paperwork.

 

All of the VAT the builder pays can be reclaimed by him when he does his VAT return. 

 

In case nobody mentions it.. Do NOT start work until you have all the paperwork sorted for your CIL exemption.

 

 

 

[Nickjj83]

That's for you help, very helpful to know it's 5% with the ability to claim in back at the end of the build.

 

We are making progress on site, removing both asbestos roofs and the roof supports, just leaving the blockwork walls.  It appears that the block work is in fact hollow block and in areas is in particularly bad condition, so much so that in some areas it would have to be rebuilt.  This has lead me to reconsider my construction approach and I am now considering demolishing both structures and replacing with a SIPS structure which works out easier, cheaper and results in a more efficient build.

 

I have checked the approved planning documents and I cannot see anything stating that the existing structures must be used however it is a 'conversion'.  I will discuss further with my insurance and mortgage supplier but do you foresee any issues with this slight change of tact?  The finished property will visually look the same.

[AliMcLeod]

21 minutes ago, Nickjj83 said:

I have checked the approved planning documents and I cannot see anything stating that the existing structures must be used however it is a 'conversion'.  I will discuss further with my insurance and mortgage supplier but do you foresee any issues with this slight change of tact?  The finished property will visually look the same.

 

If you do down the demolition and rebuild approach, you should be able to reclaim the 20% VAT. However, if the approved planning states a conversion, you may have an issue with HMRC when you come to reclaim. Might be judicious to resubmit planning as a new build if financially beneficial from a VAT perspective?

[newhome]

HMRC are very fussy when it comes to checking that the claim aligns to the planning permission so you do need to sort this out officially before going down the demolition route as @AliMcLeod has noted. 

[Temp]

Check the wording of your planning permission carefully. There have  been cases where permission was granted for a conversion, then during construction Building Control told them the existing building was unsafe/unusable. After knocking down the unsafe parts the planners told them their was insufficient left for it still to be classed as a conversion and withdrew their permission on the grounds it could no longer be implemented. They then objected to a new application on the grounds that a new house in the country side was against policy. I'm sure appeals have gone both ways. The can get messy.

 

If in doubt get the planners to confirm a knock down and rebuild is ok in writing. If they won't do that it might only be because some planning offices are funny about not giving legally binding advice in a letter. They might insist you apply to ammend the planning grant or apply for a certificate.

 

Edited August 10, 2018 by Temp