VAT and pub conversions is a bit of a big subject. But in this blog, I’m going to discuss when a pub conversion, or a conversion of any commercial property, qualifies for a DIY claim refund.
This blog isn’t about technical stuff such as the reduced rate on contractors’ services and whether it’s more cost effective to buy materials direct or via your contractor.
This is about the meaning of the term DIY for VAT purposes.
Just about every week, I get a query about VAT and pub conversions, or something similar such as an office conversion or shop conversion. A significant proportion are from people who have made or are intending to make a claim for the VAT on their costs using the VAT431 DIY scheme. Very often, they have submitted a claim and have received a letter from HMRC asking for further information about the claim and want to know how to respond.
The most common problem is that in many cases, the claimants have submitted a claim but aren’t entitled to use the scheme.
So why is this? It’s because people get confused about the meaning of “DIY” and how it applies for the purposes of the VAT431 refund scheme.
In this context, DIY ONLY applies to conversions or new construction where the intention of the claimant is to use the property for personal or family use as a home or holiday home.
If the conversion or new build will be used for business purposes, then you cannot claim VAT under the VAT DIY scheme.
I can understand the confusion – if you’re carrying out some sort of building project and actually doing a lot of the work yourself or with help from family or friends, then it is a DIY project. In a lot of cases, the property owner will buy the materials direct from a building supplier and provide the labour. The thing is, like everything in the world of VAT, the term DIY has a very specific application and ONLY applies if the construction/conversion is for non-business purposes as a family home.
I really can understand the confusion. But to be fair to HMRC, if you read the VAT 431NB/431C properly, it does clearly explain that the refund scheme is only if the property is for personal use as a home. And the forms also clearly explain that you CANNOT use the scheme to claim VAT if your intention is to use the property for business purposes. So if you’ve spent time and energy preparing and submitting a claim that doesn’t qualify for the scheme, then you’ve submitted an invalid VAT claim all because you haven’t read the guidance on the form correctly.
So how do you claim VAT if the property is for business purposes?
Normally you can only claim VAT on costs if you’re registered for VAT and the building will be used to make taxable supplies. This would include selling a new house or, in certain very limited cases, if you sell or lease certain residential properties that have been converted from non-residential. It would normally also include serviced accommodation or holiday accommodation.
But you CANNOT claim VAT on your costs if you otherwise sell or lease dwellings created from old pubs or other commercial property. That’s why most residential landlords aren’t registered for VAT – their income is VAT exempt and they can’t claim VAT on their costs.
I’ll be posting an article about VAT and pub/office/shop conversions in the next week or so where I’ll l discuss some of the specific VAT issues for conversions, whether you’re planning to use the property for business purposes or as a home.
In the meantime, if you want to know more about VAT and residential property development for businesses, check out my book which is available on Amazon: VAT for residential property developers and contractors for just £19. It explains how the VAT rules work and when you can claim VAT on property development as a business activity.
If you’re planning a conversion or new build for use as a family home, check out my ebook: VAT for DIY residential property developers which is available on this website http://tinyurl.com/ksqe4zy.