Now we’re finally in a position to move forward with a builder and start thinking about the finances, I’ve had to try and get my head around the complicated minefield that is HMRC! As we are converting a building ‘which has not previously been a dwelling’ we are, providing we meet a few requirements, entitled to a reduced rate of VAT at 5% on the majority of the build. All the information can be found on the HMRC website by entering ‘708’ into the search bar. Then within three months of the build’s completion, HMRC will refund VAT paid for a large proportion of the build. Stakes are high to get this right, as if we are charged the wrong rate of VAT by any of the contractors, we will not be entitled to any refund! A mistake which could cost thousands! For anyone reading this for advice on your own barn conversions, I have noted the relevant sections from the document here but you use this information at your own risk and through your own interpretation 🙂
First of all we had to be sure that we qualify for the reduced rate: [SECTION 7.1] It is a building which has never been lived in [7.3] and it is being converted into a ‘Single Household Dwelling’ [14.4]. All seemed straightforward so far!
What qualifies for a reduced rate of VAT on a barn conversion?
‘Any works of repair, maintenance or improvement’ [7.6], including; water, power, heat or access; drainage or security; waste disposal. Essentially, it is anything that makes up the fabric of the build and needs tools to remove it [13.3]. Think permanency.. yes.. changeable.. no. For example, curtain poles are included, but the curtains aren’t. Flooring, such as tiles or laminate..yes.. carpets..no. Other items not included are the erection and dismantling of scaffolding, hire of goods, landscaping and professional services such as architect, designers, engineers etc. It is also anything that is ‘ordinarily’ found in a building like this [13.4][13.8.1] – a list is provided to give more details, but includes things like permanently erected fences, fireplaces and surrounds. Saunas are on there, as are indoor swimming pools. Hadn’t realised these were such commonplace! It states that the list evolves over time as times and preferences change.
As we are hiring a Main Contractor to complete the build, he will be able to charge reduced rate for labour and goods for all qualifying elements and Building Materials (as discussed above) [11.2] All elements which do not qualify for the reduced rate, such as fitted furniture [13.5] (Kitchens do not fall into this category as they qualify for reduced rate) must be charged at the standard rate of VAT, which is currently 20%. Other items which are not classed as ‘Building Materials’ and so must be charged at standard rate are; electric and gas appliances [13.6] (unless they are to heat space or water – AGAs or similar do not count as their heating of a space is ‘incidental’ and therefore not deigned to heat space). Then any other materials we buy ourselves, even if they qualify for the reduced rate, will have to be charged standard rate of VAT which will then be refunded at the conclusion of the build. Provided we keep all the receipts and they are all in our name! All of these have to be recorded on the form 431C which can also be found on the HMRC website.