VAT DIY scheme update

The VAT DIY scheme enables input VAT to be reclaimed on costs of constructing a new family home.  Typically in a farming family, this might be for mother and father to retire to, or for a son or daughter on the farm.

Since covid, HMRC’s processing of paper-based VAT DIY scheme claims had become very slow.  Our experience is that recent changes have dramatically improved the turnaround times. 

Eligibility

The VAT DIY scheme is only for new builds (including barn conversions) for family residential purposes.  It cannot be used for dwellings constructed for business (eg house for letting or farm worker).

Only VAT on standalone purchases of building materials can be reclaimed under the scheme.  Contractors working on the build must instead zero rate their invoices for their work and the materials they supply and incorporate.

HMRC have guidance here on what constitutes ‘building materials’.  The guidance is detailed: furniture cannot be claimed unless it is fitted kitchen furniture, nor can consumables or tools – so paint can be claimed, but not the paint brushes or sandpaper!

HMRC’s recent changes

The recent changes include:

• Extended time limit for claims: For dwellings completed on or after 5 December 2023, the deadline to submit claims has been extended from 3 months to 6 months after completion.

• Online application process: The application form is similar, but can now be completed online, rather than on paper. The online claims we have seen so far have been processed much faster by HMRC.

• Invoice paperwork: Previously, all original invoices had to accompany the paper application. They are no longer submitted with it, but must be retained, and HMRC will often ask for a selected sample of invoices before they issue the refund.

• Agent authorisation: The online process has now been updated to permit applications by agents.

It is still possible to make applications on paper but, given our experiences with HMRC’s turnaround times, we strongly recommend using the online facility.  Delays can also be reduced by ensuring that the schedule of invoices is clear and has good descriptions, that no ineligible costs are included, and that the invoice records are well cross-referenced and ordered so that any invoices and further information required by HMRC is provided to them quickly.

If you have a VAT DIY scheme claim to make, get in touch, we would be glad to assist.