I thought it was about time to review the VAT situation regarding the barn to ensure that my understanding is correct, so an overview of the current legislation follows with appropriate extracts.
My apologies if any of this reads a strangely, I wanted to keep as much of the wording from the official sources intact to avoid incorrect paraphrasing or misquoting. My focus in reading these documents has been very much on barn conversions so again my apologies if your interests lie elsewhere.
Who can claim?
You can claim if you buy eligible goods and services that are used to convert a non-residential building into a qualifying dwelling or communal residential building.
Do I need to do the work myself?
You can claim for eligible goods you buy and give to your builder to incorporate into the building (or its site) provided that the work is done before the date of completion
Conversions of non-residential buildings
What is a ‘non-residential conversion’
A ‘non-residential conversion’ takes place when the building (or part) being converted has never been used as a dwelling – and it is converted into a building designed as a dwelling.
Examples of a ‘non-residential conversion’ include the conversion of:
…an agricultural building (such as a barn) Hooray!…
Will I be charged VAT on goods?
Retailers and builder’s merchants charge VAT at the standard-rate on most items they sell.
Builders, however, charge VAT on building materials that they supply and incorporate in a building (or its site) at the same rate as for their work. So, if their work is zero-rated or reduced-rated, then so are the building materials. This does not apply to ‘non-building materials’ (the VAT on which you cannot claim), which remain standard-rated.
Take care to ensure that you are charged the correct amount of VAT, as you can only reclaim VAT that has been correctly charged.
On what goods can I claim VAT?
You cannot claim for:
- fitted furniture, other than fitted kitchen furniture…
- most electrical and gas appliances…
- carpets, underlay and carpet tiles…
- garden ornaments, sheds and greenhouses;
- plant, tools and equipment;
- consumables that are not actually incorporated in the building (e.g. sand paper, white spirit, etc.);
- building land…
[Building materials are] the articles [that] are ‘incorporated’ in the building (or its site).
[There is a list of acceptable building materials in section 8.11 Examples of items ‘ordinarily’ incorporated in a building]
9.1 Will I be charged VAT on services?
For conversions, a builder can sometimes charge VAT at the reduced rate of 5% or, if you are a housing association, at the zero rate.
If…you are carrying out the conversion of a non-residential building…you can claim the VAT charged by your builder for converting the building.
Further information on the liability of builder’s services and how they tax goods is explained in Notice 708 Buildings and construction [see below]
Can I make claims as the work progresses?
No. You can only make a single claim when the construction or conversion of the building is completed.
…Claims must be made no more than three months after the construction or conversion is completed…
…a building can be regarded as still under construction up until the date when a certificate of completion is issued by the local planning authority.
Who should read this notice?
You may find this notice useful if you:
> are a contractor or sub-contractor;
> are a developer;
> need to issue a certificate in order to obtain zero-rated or reduced-rated building work…
VAT liability – Construction services
The construction of a new building and work to an existing building is normally standard-rated. There are, however, various exceptions to this.
Other [(than the conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building)] conversions of premises to a different residential use. [i.e a barn conversion] … Rate of VAT 5%
Builders, however, charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work.
So in summary:
- Builders should charge a VAT rate of 5% on materials that they source and their labour costs.
- Following completion of the building a claim may me made to HMRC for any VAT that has been paid (at either the full or reduced rate). This must be within three months of completion and is a one-off event (i.e. no second chance) so keep all those invoices.