VAT for DIY Property Developers

Marie Stein

Preview

September 2019

Foreword

This book is for those of you who are planning to do your own DIY property developments

to create, convert or refurbish a dwelling for your own or family use.

These include:

Building a new dwelling for you or your family.

Converting an existing commercial property to create a new dwelling.

Changing the number of dwellings in a building.

Renovating, altering or repairing a dwelling that has not been occupied for two years or

longer.

Renovating a dwelling that has not been occupied for ten years or longer.

It explains when you can save VAT on costs and when you can claim VAT on costs from

HMRC under the VAT DIY refund scheme.

The book also contains some information for those of you who are considering developing residential property as a business activity or holiday lets. It includes useful information about when you might have to register for VAT and an introduction to the complex rules about VAT and commercial property.

If your development is for business purposes; e.g. to be sold or let to third parties, then you cannot claim VAT under the DIY refund scheme. The DIY scheme is ONLY for private individuals who are building or converting for personal use; e.g. their family home. If you are developing for business purposes, please refer to my book "VAT for residential property developers and contractors" which explains how the VAT rules apply to businesses.

The VAT and property rules are complicated and it's easy to make expensive mistakes

when you don't understand how they apply to your own situation. You need to do your

research before you start spending any money and work out the most VAT efficient way

of doing your own property development.

VATWoman's Guide to VAT for DIY property developers

How to save VAT on self-builds, home conversions and renovations

Contents

Introduction............................................................................................................................15

SECTION 1 IMPORTANT INFORMATION THAT EVERYBODY NEEDS TO KNOW.............18

Chapter 1 VAT and residential property development...............................................................18

About the zero-rate or the reduced rate

How VAT works

How do you get the zero-rate or 5% relief

How VAT works

The VAT fraction

What if your supplier/contractor wants written confirmation from HMRC?

Definitions and dwellings

Composite and multiple supplies

VAT invoices: 25 The VAT fraction: 26 Chapter 2 So what exactly IS a conversion then? ......................................................................27

Conversions

Reduced rated conversions

DIY claims: "non-residential conversions"

In practice

Property developers and conversions

And it's not just VAT...

Chapter 3 Claiming VAT from HMRC: Introduction to the DIY refund scheme..........................31

What exactly is the DIY refund scheme?

Do I have to do the work myself?

How do I apply?

o VAT 431NB: New build

o VAT 431C: Conversions

What can't I claim?

Personal or family use

Chapter 4 Money and contracts..................................................................................................35

Zero-rated new construction

What sort of conversions and renovations qualify for the reduced rate?

How do you get the zero-rate or 5% relief?

What if the contractor refuses to charge 5% unless I have a letter from HMRC?

If my contractor has to pay the difference to HMRC, how much does this cost?

But if my contractor can claim back at 20% then only charges 5%, doesn't that mean he is

making a profit of the 15% difference?

I've paid 20% on goods and materials for a conversion - how do I claim the difference between

the 20% and 5%?

So why not have everything done by non-registered contractors and save VAT that way?

Why not just pay in cash to avoid VAT altogether?

Architects, surveyors, project managers.......

Chapter 5 Practical issues: budgeting and planning rules ..........................................................45

Dealing with VAT from Day 1 o Budgeting o Start from the worst case scenario o Cashflow

Getting the details right

Dealing with VAT on contracts o So who is liable for under-charged VAT? o Minimizing the risk o The contractor's perspective

Planning issues

Conversions and permitted development rights

Changing plans during the project: do you need revised consent/approval

Introduction to the case studies... .............................................................................................52

Case study 1: DIY self-build: 53

Case study 2: DIY home conversion: 54

Working out your own VAT cost: 55

SECTION 2 HOW TO SAVE VAT ON COSTS.............................................................................56

Quick reference guide 20 ways to save VAT...........................................................................56

Chapter 6 How to buy your property VAT free: VAT 1614 certificate....................................... 58

Why do commercial property owners have to charge VAT?

How to buy opted commercial property VAT exempt: the VAT1614D procedure

When can I use the VAT1614D?

How do I do it?

o When is the price "legally fixed"?

o When can I issue the VAT 1614D to the vendor?

Where do I get the form?

Building land

Buying as an intermediary

The vendor’s VAT position: the 2-price scenario

Issuing certificates before the price is legally fixed

Keep a record of the events

What your solicitor needs to know

Buying VAT free can reduce your stamp duty as well

Chapter 6 Appendix FAQs about the VAT 1614D procedure.....................................................64

What if I'm buying at auction?

Do I need planning permission for conversion work before I issue the VAT1614D?

What happens if I’m late with my certificate?

What if I don't use the property as intended when I bought it?

What if the property contains an existing dwelling(s)?

What if there are tenants in the property?

Buying VAT exempt in other situations

What if I’m buying a "new" commercial property to convert into a home?

Chapter 7 Zero-rated new construction......................................................................................68

How does it work in practice?

VAT planning in advance

Definitions: what's a "qualifying" dwelling?

What's a "new" dwelling?

What are "qualifying services"?

Building materials

Other residential and charitable use properties

Listed buildings

Apportionment

Chapter 8 Reduced rate for conversions and renovations .........................................................75

How does it work in practice?

What's a "qualifying conversion"?

o Three types of conversions

Mixed conversions and refurbishments: is it a business activity?

“Qualifying properties” for conversions

Renovating or altering "Qualifying residential premises"

Reduced rate for qualifying conversions.

o Converting parts of property

Reduced rate for qualifying renovations.

Which conversion and renovation services qualify for the reduced rate? o Qualifying services.

Chapter 8 Appendix Converting, renovating, repairing a single building at the same time.....85 Chapter 9 Building materials.......................................................................................................99

Goods and materials used in construction work

What are building materials?

Zero-rated construction and reduced rated construction

o New construction

o Renovations, conversions

Chapter 10 Other important practical issues.............................................................................93

What’s always standard rated even in zero-rated new construction and reduced rated qualifying conversions and renovations?

When is “completion”?

Mixed developments: apportioning the price between work at different rates. o Work done before completion o Work done after completion

Garages.

Planning permission; building consents: why it matters.

Listed buildings Chapter 11 Saving VAT with single contractors and design and build........................................ 97

How it works

Engaging a third party contractor

Design and build services Chapter 12 Specific VAT reliefs on other construction services................................................102

Redecoration, alterations, repairs and maintenance work

Work carried out in the course of qualifying conversion or renovation

Installation of energy saving insulation

Installation of grant funded heating measures

Adaptations for the handicapped

Adaptations for the elderly Case studies Part 2 VAT on costs............................................................................................. 106 SECTION 3 DIY HOUSE-BUILDERS AND HOMECONVERTERS CLAIMS............................108 Chapter 13 Are you eligible for a DIY refund scheme claim?................................................... 109

New construction

Conversions

Converting a non-residential property into a dwelling

o What’s a dwelling? o Non-residential conversion o Conversions of mixed residential and commercial properties o The “ten year unoccupied rule”

VAT savings on contractors’ services o Reduced rated conversion services o Building materials o Contractors must apportion costs o You can only claim VAT “correctly charged” under the DIY Refund scheme o Get as much work done before completion as possible

Working with your contractor

Listed buildings Chapter 14 What can you claim?.............................................................................................. 117

Property: NO

Goods: SOME

Services: SOME

The “design and build” anomaly

What happens when VAT is over-charged or incorrectly charged? Chapter 15 How to make a claim...............................................................................................122 Chapter 16 When things don’t go to plan ................................................................................. 123

What happens if you can’t live in the property when it’s completed?

What happens if your intentions change during the construction process? Chapter 17 Converting pubs and other commercial properties with existing residential accommodation.......................................................................................................................... 126

When you can save VAT if you’re buying a commercial or mixed property

Properties with existing self-contained dwellings and the “90/10” split

When you can save VAT on reduced rated conversion services and renovations

Properties with no existing self-contained dwelling

Properties with existing self-contained dwellings

When you can claim VAT on non-residential conversions

The difference between reduced rated conversion services and non-residential conversions

The self-contained anomaly

Commercial developers, the DIY Refund scheme and the zero-rated anomaly

Case studies Part 3: DIY refund scheme claims and the final VAT cost................................... 132

SECTION 4 OTHER STUFF AND THE FAQS.............................................................................. 133 Chapter 18 Property development as a business activity........................................................ 133

What do you want to do? Develop and sell or develop and lease? Or both?

How does this apply to residential property development? o Zero-rated sales o Listed buildings o Holiday lets

VAT registration and claiming VAT on costs

Introduction to commercial property

Chapter 18 Appendix Claiming VAT on costs.............................................................................139

Chapter 19 Holiday accommodation....................................................................................... 142

What is a holiday let?

Dwellings used as holiday lets

Income from holiday lets

Tour Operators Margin Scheme

VAT recovery and partial exemption

Using your own home for holiday lets

Chapter 20 Commercial house builders and self-build/conversion projects.......................... 148

What if the building is completed and then the builder decided to live in it?

Sole proprietors and partners

Company directors

When you have to pay VAT to HMRC: "deemed supplies"

Chapter 21 FAQs........................................................................................................................ 151 Introduction to the FAQs

Section 1 Goods: building materials and installation............................................................154

1.1 Vanity units: 155

1.2 Electric gates and doors: 157

1.3 Integrated units: 158

1.4 Landscaping, plants, trees etc: 160

Section 2 Services and other issues.......................................................................................... 164

2.1 Detached garages: 164 2.2 Hiring equipment: 165 2.3 Scaffolding: 166 2.4 Plant and machinery: 167

2.5 Delivery: 167 Appendices................................................................................................................................. 168 Appendix 1 HMRC Notices: 168 Appendix 2 Definitions: 169 Appendix 3 Apportionment: 171 Appendix 4 Extract from "VATWoman's Guide to VAT and residential property development: Being a VAT registered business: 174 Index........................................................................................................................................... 186

VAT for DIY property developers

This book is a guide about the way that the VAT rules apply to residential property developments,

based on my interpretation of the legislation and HMRC guidance at the date of publication. It DOES

NOT cover every possible scenario nor does it replace formal advice on specific situations. Please

take proper advice to be certain about the VAT implications of your development and avoid

unexpected VAT issues along the way.

The main VAT rules are summarized for the purposes of this book and their relevance to residential

property developers. Links to HMRC’s guidance on the subjects discussed in this book are included

throughout the book and you must refer to HMRC's guidance for full and detailed information about

any subject.

This is the second edition of the book. The content has only changed to include details of some

minor changes in policy about zero-rated new construction announced by HMRC in 2017, which are

explained in Chapter 7.

Marie Stein

March, 2018

Copyright

The copyright of this book belongs to the author and neither the whole nor any part of this book

may be reproduced in any form without the author’s express permission, other than material from

HM Customs and Revenue publications, which are available on HM Customs and Revenue website

www.hmrc.gov.uk.

Marie Stein

March, 2018.

Introduction

If you're doing any sort of DIY project to create your own home, you NEED to read this book.

Doing any sort of DIY project - from new construction to conversions to renovations - is an

expensive and time consuming exercise. VAT can add up to 20% to your costs; you'll pay it on

goods, materials, contractors fees or even on the property itself. You might be able to claim some

of the VAT from HMRC, but you need to understand how the VAT rules work to keep your VAT cost

as low as possible. That's why it's REALLY IMPORTANT that you get the VAT correct right from the

start.

This book will help you to understand how the VAT rules work so that

you can save as much VAT as possible and manage the VAT process

efficiently. It's for those of you with little or no VAT knowledge who

need to know how VAT applies to their property development and

how to save as much VAT as possible.

N.B. This book is primarily written for those of you who are developing

property for personal or family use. There is some information about

selling and renting as a business activity in the book, particularly in

Chapters 18 - 19 and Appendix 4. You can also find more detailed

guidance in my book: "VATWoman's Guide to VAT and residential

property development"

This book is in 4 main sections:

Section 1: Chapters 1-5: Important information that everybody needs to know: includes a brief

introduction to how VAT works and practical stuff that will help you deal with your development

from planning to completion.

Section 2: Chapters 6-12: VAT on costs. These chapters are all about saving VAT on costs including

buying commercial properties for conversion VAT exempt; the zero-rate for new construction and

the reduced rate for certain conversions and renovations/renovations.

Section 3: Chapters 13-17: DIY VAT refund scheme. This section explains how the DIY refund

scheme works, who is eligible to use the scheme and how to make a claim.

Section 4: Chapters 18-21: specialized chapters. These include an introduction to VAT for those of

you considering property development as a business and holiday lets. Finally, Chapter 21 answers

those FAQs about common problem areas, e.g. VAT on electrical appliances, garages and the

perennial problem of vanity units.

I can get this information from HMRC. So why do I need this book?

Yes, you're right. HMRC provide very good and well written comprehensive technical information

about construction services in HMRC VAT Notice 708: Buildings and construction

http://tinyurl.com/mod94mc. The DIY claim forms (the VAT 431B and 431C) and guidance notes

http://tinyurl.com/gu4zz9m explain when and how you can make a DIY VAT refund.

Learn how the VAT rules

work from the start, to have

the best chance of

saving VAT

Surely I can ask HMRC for more help on the VAT helpline if I'm

confused?

Yes, and the officers will do their very best to help you. And if you're

making a DIY refund claim you can contact HMRC's dedicated DIY

Refund scheme office, who have a lot more specialist knowledge.

However they can't possibly deal with every hypothetical scenario and their guidance can be

difficult to follow, especially if you're new to VAT.

Also, HMRC's guidance doesn't include much practical guidance and they don't get involved in

disputes with contractors about VAT liability. So if your contractor insists on charging 20% instead of

5%, it's up to you to convince the contractor otherwise.

That's where this book comes in. I've included lots of practical advice to help you, whether you're

dealing with contractors or HMRC and explained the rules in "plain English", as far as possible,

Main problem areas

And these are just some of the main problem areas covered in this book:

Sometimes contractors don't understand when the 5% reduced rate applies.

The difference between 5% and 20% can significantly affect your overall budgeting.

DIY claims can be delayed or even rejected because of simple mistakes.

You can only ever claim VAT that has been correctly charged which means that YOU MUST KNOW the VAT liability of contractors' services right from the start of the project.

Claims are rejected if the planning permission isn't correct

There are different criteria for DIY VAT claims depending on whether you're doing a new build and or a home conversions.

Definitions: conversions and dwellings

One of the most common problems with VAT and construction is the definitions, including several

different definitions of the words "dwelling" and "conversion". A good example is the word

"conversion", which has two different definitions; one applies to the 5% VAT rate on conversion

services and one to DIY home-converters claims - see Chapter 2.

This means that even though your contractors' services may qualify for the 5% rate, you may not

be eligible to claim the VAT under the DIY refund scheme.

The definition of "dwelling" also causes a lot of confusion - there are at least 3 separate definitions in

the law, as we'll discuss throughout the book.

What is the "VAT cost"?

Throughout this book, I'll be referring to the "VAT cost" of your self-build project. Usually , this is

simply the VAT that you pay to contractors and other suppliers.

If you're eligible to make a DIY refund claim the "VAT cost" is the difference between:

It's a dwelling, Jim, but not as we know it...

the VAT you pay on your goods and services; and

the amount of VAT you can claim from HMRC.

And finally, why doesn't HMRC just write a list?

I'm often asked why HMRC doesn't provide lists of all goods or services that qualify for the zero-rate

or reduced rate and every possible type of expenditure that you can claim under the DIY refund

scheme. Their guidance does include some very helpful lists, but unfortunately it's simply

impossible to cover every possible scenario.

I've discussed some of the most frequently asked questions in Chapter 21, but please contact me

marie@vatexchange.co.uk if you have any other queries and I'll do my best to help.

In the meantime, I hope that you end up with a beautiful home and this book helps you to save as

much VAT as possible.

Marie

Section 1: Basic information that EVERYBODY needs to know

Chapter 1: How VAT works

Before you can understand the detailed rules of how to save VAT, you need to understand how VAT

works. PLEASE read Chapters 1 - 5 as the content will help to save you time later on.

How does VAT work?

The VAT fraction: VAT exclusive and VAT inclusive values

It's up to the contractor

When you can save VAT on your costs

o Buying commercial property for conversion VAT free

o Contractors' services

o DIY Refund scheme

o How can you save the most VAT?

o What if I pay too much VAT?

Definitions: dwellings, conversion and other criteria

Converting or renovating for lease or sale

What if things don't go to plan?

VAT invoices

Apportioning VAT for work on common areas of a property

How does VAT work?

So how does work in practice?

VAT is a tax on the sale of goods and services. Businesses have to register for VAT and charge VAT if their income exceeds the VAT registration limit, which is currently £85,000 per year (April, 2017).

There are 3 different rates of VAT:

the standard rate of 20%

the reduced rate of 5%; and

the zero-rate*

These are called "taxable supplies". VAT registered businesses who sell taxable goods and services can claim VAT on their costs. The VAT on their sales is output tax and the VAT on their purchases is called input tax.

*There is also another class of sales which are exempt from VAT. Like zero-rated sales, the business doesn't charge VAT on their sales but because their income is VAT exempt, they can't normally claim VAT on their purchases. For example, if you're currently renting your home, the rent is VAT exempt so your landlord can't claim VAT on his costs. Sales of existing dwellings are also exempt from VAT.

The VAT fraction: VAT exclusive and VAT inclusive values

If you're buying goods directly from retailers, then for smaller value items the invoice may just show the gross value and the VAT rate; e.g. "goods: £190 including VAT@20%". You might assume that

the VAT is 20% of the value of the goods, but actually that's not how it works, because the VAT is 20% of the NET value of the goods.

The gross price is therefore 120% of the net price.

The VAT fraction is the VAT element of the gross price represented as a fraction:

20% VAT = 20/120 = 1/6

5% VAT = 5/105 = 1/21

I've explained the arithmetic in a bit more detail on page 27, but hopefully you won't need to calculate the VAT yourself very often.

It's up to the contractor

Because VAT is a self-assessed tax, VAT registered businesses charge VAT to their customers and pay the difference between the VAT on their purchases and VAT on their sales to HMRC. The businesses normally submit VAT returns and payments every three months.

This means that the business has to decide whether their sales of goods and/or services are liable to 20% VAT, or qualify for the 5% or zero-rate, or even exemption from VAT. It’s their liability to get it right. If they charge 5% for work that HMRC believe is liable to 20% VAT, they have to pay the difference to HMRC as I've explained in Chapter 4. That's why contractors are often very cautious when it comes to applying the zero-rate or reduced rate.

How to save VAT on your costs

There are 3 ways to save VAT on residential property development:

Buying commercial property for conversion VAT free

If you're buying commercial property to convert to residential for personal or family use, the vendor

may have "opted to tax" the property. This normally means he has to charge VAT on the sale of the

property, but you can't claim this VAT from HMRC. However, you can prevent the vendor charging

VAT by issuing the VAT1614D certificate to the vendor before the price is legally fixed, which

requires the vendor to sell the property VAT exempt. This means that you save 20% on the

purchase of the property, which is probably the single largest saving you can make. See Chapter 6

for detailed information about the VAT 1614D procedure.

There is a similar procedure for individuals who want to purchase land to build their own homes,

also explained in Chapter 6.

Contractors services: zero-rated new construction and reduced rated conversions/renovations

The zero-rate applies to construction of new dwellings. The reduced rate of 5% applies to building

services in the course of certain qualifying conversions and renovations.

The zero-rate and reduced rate normally also apply to "building materials" supplied by the

contractor in the course of those building services, from bricks and mortar to fitted kitchen

furniture. See Chapter 9 where I've explained the meaning of "building materials" in more detail.

Claiming VAT under the DIY VAT refund scheme.

The DIY refund scheme applies if you're building your own home or converting a property to

create a new dwelling. If you're building a new home, you can claim VAT on "building materials"

that you buy direct. If you're doing a conversion, you can normally claim VAT on "building

materials" that you buy plus VAT on your contractor's services.

See Chapter 2 where I've explained the main differences between the meaning of "conversion" for

reduced rate construction services and for the purposes of the DIY refund scheme.

How can I save the most VAT?

How to reduce your VAT cost depends on your specific

circumstances and how you want to do things.

For example, if you employ a VAT registered contractor to

supply and fit a new boiler in your renovation and the

renovation qualifies for the reduced rate of VAT, as

explained in Chapter 8, the contractor can charge 5% for

both his labour and the new boiler.

However, if you buy a

boiler direct from a

builders’ merchant

and engage the VAT

registered contractor

to install the boiler,

then you have to pay

20% on the boiler,

although the contractor can charge 5% for his services.

But which saves the most VAT? Well it depends on all sorts of

things, e.g. the contractor's mark-up to the cost of the boiler? Does the retailer charge more for

delivery if you buy direct? What about employing contractors who aren’t registered for VAT so that

you don't pay any VAT on labour?

Usually, you'll pay less VAT if the proportion of the goods and material is higher than the labour

costs and you employ a VAT registered contractor to supply and install at the 5% rate.

Either way, the only way calculate the most VAT efficient way to arrange your expenditure is to do

your own calculations, based on how much you expect to spend on goods and your contractors'

estimates. I've discussed this in more detail with examples in Chapter 4.

If you buy goods directly, e.g. a new

boiler, you have to pay 20% VAT. You

CANNOT claim any VAT from HMRC

even if the contractor's services qualify for the zero-

rate or 5% rate.

If the contractor charges 5% for work

that HMRC say should be standard

rated, the contractor has to foot the bill.

What if I pay too much VAT?

Even if you're eligible to make a DIY refund scheme claim or you're registered for VAT as a

business, you can't claim all of the VAT you pay from HMRC.

There are 2 reasons for this. First, neither DIY VAT claimants nor VAT registered businesses can

claim VAT on certain goods and materials, such as carpets, certain electrical appliances, fitted

furniture. I've explained this in Chapter 9.

Second, YOU CANNOT CLAIN VAT THAT HAS BEEN OVERCHARGED. For example, if you pay 20%

VAT for services that qualify for the zero-rate or 5%, you can't claim ANY of the VAT. More about

this in section 3 about the DIY refund scheme and Chapter 18 about property development

businesses.

Definitions: dwellings, conversion and other criteria

The issue of definitions is very important because the zero-rate and reduced rate only apply if certain conditions are met. These include specific criteria for the words "dwelling" and "conversion".

What does this mean? As I explained in the Introduction, there are at least three different definitions of the word "dwelling" and two of "conversion" when it comes to VAT and property. I've discussed the two different meanings of "conversion" in Chapter 2. One definition applies to the VAT liability of construction work when the reduced rate applies, while the other applies to conversions that qualify for the DIY refund scheme.

There is more detailed information about this in Chapter 8 which deals with the 5% reduced rate and Chapters 13-17 that deal with the DIY refund scheme. I've also included the main definitions of "dwelling" in the Appendix.

However, that's just where it starts. As you'll see in Chapters 7-8 and VAT Notice 708, the zero-rate or 5% VAT reliefs for construction services only apply if very specific criteria are met.

For example, a new dwelling only qualifies for the zero-rate construction or the DIY refund scheme as long as any previous dwellings on that site are demolished to ground level.

Zero-rating also applies if certain party walls or certain facades are retained. However, if you want to retain any other parts - for example some internal supporting walls, or external features such as dormer walls - then the zero-rate doesn't apply to any of the construction. This also means that the construction wouldn't qualify for a VAT DIY refund. So if you're simply replacing an existing dwelling, then the construction work will probably be liable to 20% VAT. That's a huge difference to your costs.

HMRC enforce these rules very strictly - it is the law so they don't have much lee-way. That's why it's so important that you read and understand how the rules apply in your situation. Small things can make a significant difference. You might like the idea of keeping a wall with some dormer

HMRC enforce the zero-rate and reduced rate strictly. It's the

law so they don't have much leeway.

windows, but it's probably significantly cheaper to remove that wall entirely than have to pay VAT 20% because the construction is a "replacement" and not a "new" dwelling.

Converting or renovating for lease or sale

If you're building, converting or renovating for lease or

sale, you're also eligible for the VAT savings on

construction work described in Chapters 7 and 8. The VAT

rules for businesses and when businesses can claim VAT are explained briefly in Chapter 18,

Appendix 4 and my book "VATWoman's Guide to residential property development".

What if things don't go to plan?

Of course, things don't always go to plan and you might find yourself in a situation where you

have to sell or lease your new, newly converted or refurbished property. Chances are that the

zero-rate or reduced rate for the construction work won't be affected, but it could affect your

entitlement to claim under the DIY refund scheme. I've explained how you deal with VAT if your

initial plans fall through and you have to sell or lease the property in Chapters 16 and 17.

VAT invoices

A "VAT invoice" is the legal document issued by the vendor or contractor which confirms that

you've bought goods or services. Usually, when you buy goods or services, you receive a "receipt"

which shows basic information about the sale, e.g. the date. the retailer's VAT registration

number, description of goods or services, the total amount paid and the VAT rate.

However, if the goods or services cost £250 or more (including VAT) the supplier - whether it's a

retailer or a contractor - has to give you a full VAT invoice which shows a lot more information,

including a full description of the goods and services.

In practice, you only need a full VAT invoice if you're claiming VAT under one of the DIY refund

schemes. This is the documentary evidence that allows you to include the VAT on your claim.

If you're making a DIY refund claim, it's also important to make sure that your details are shown

correctly, i.e. name, address etc or HMRC may reject that part of your claim.

The full list of information that you need on a VAT invoice is shown in the Appendix to this

chapter.

Other ways of saving VAT: apportioning contractors' fee

In most situations, you'll pay VAT at 0%, 5% or 20% on the full value of construction services, but

there are situations when your contractor can apportion certain parts of the bill.

Suppose the contractor is converting the first floor of a property into a flat, where most of his

work qualifies for the reduced rate. The ground floor is a shop. At the same time, he also carries

out some repairs on the roof and the foundations of the property. Of course, the roof and

foundations are essential parts of the property and benefit both the ground floor shop and the

first floor conversion.

You only need a full VAT invoice if you're claiming VAT under

the DIY refund scheme

Normally, the contractor would have to charge VAT at 20% on property repairs. However,

because the repairs are being carried out in the course of the conversion, the contractor can

apportion this part of the bill so that you only pay 5% VAT on the part that relates to the first

floor.

Apportioning costs can be done in different ways and can only be done in certain circumstances.

I've included some more detailed information in Appendix 3. It's worth understanding the

principles to keep your VAT costs as low as possible.

Chapter 1: Checklist

VAT is charged on sales at 20%, 5% or 0%.

The contractor decides which rate of VAT must be charged.

Construction of a new dwelling is usually zero-rated.

Certain conversion and renovations are liable to the reduced rate of VAT, but only if the

work meets certain strict criteria.

Other construction services are standard rated apart from very limited reliefs for the

disabled or the elderly.

The DIY refund scheme allows private individuals who build their own home or convert

a dwelling from a non-residential property to claim VAT on certain costs.

You need a proper VAT invoice in your name from your supplier or contractor to claim

VAT under the DIY refund scheme.

Contractors can apportion their invoices to identify work at different rates of VAT. If

they don't, they have to charge VAT on the whole amount.