Menu
Reclaiming VAT on a self-build home project can significantly reduce the overall cost of building or converting your property. The VAT DIY Housebuilders Scheme is a special VAT scheme that allows private individuals to benefit from the same VAT advantages as professional property developers. Under this scheme, the qualifying construction costs of a new home and certain types of conversion work can effectively benefit from VAT zero-rating. This allows qualifying homeowners to reclaim the VAT paid on eligible building materials.
A claim can be made for qualifying building materials on which VAT has been charged. Qualifying materials include most materials incorporated into a new building or conversion which cannot easily be removed. This includes items such as bricks, timber, roofing materials, plumbing, wiring and plaster. Items such as fitted furniture, carpets, curtains, and certain domestic appliances are excluded from the scheme, even if they are installed as part of the build.
In most cases, you must submit a claim within six months of completing the new build or conversion project. Completion is usually evidenced by a completion certificate or similar official documentation.
Claims are normally submitted online. However, if you are unable to use the digital service, you can apply using paper forms. There are two main forms available: VAT 431NB for new build properties, and VAT 431C for qualifying conversions.
When issuing invoices, it is important to apply the correct VAT treatment. In some cases, that means not charging VAT at all. Although most UK businesses charge VAT at the standard rate of 20%, there are other rates and categories that may apply. Understanding these distinctions can help you avoid costly errors and penalties.
In addition to the 20% standard rate, there is also reduced VAT rate (5%) and a zero VAT rate (0%). Even though zero-rated supplies are charged at 0%, they are still within the VAT system and must be recorded correctly on your VAT return.
There are two main categories where VAT is not charged: exempt supplies and supplies that fall outside the scope of VAT. Although no VAT is charged in either case, the rules and reporting requirements are different.
Exempt supplies are goods or services on which no VAT is charged. Common examples include insurance, postage stamps and health services provided by doctors. If your business only makes exempt supplies, you cannot register for VAT and you are not able to reclaim VAT on your business costs.
Supplies that are outside the scope of VAT fall completely outside the UK VAT system. In these cases, VAT cannot be charged and VAT on related costs cannot usually be reclaimed. Examples of supplies outside the scope include goods or services bought and used outside the UK, statutory fees such as the London Congestion Charge and goods sold as part of a private hobby.
If VAT has been charged incorrectly, the error must be corrected. The process for doing so depends on the amount involved and when the mistake occurred. Acting promptly can minimise disruption and potential penalties.
If you are unsure whether VAT should be charged on a particular supply, we would be happy to help guide you on this issue.
For eligible businesses, the VAT Annual Accounting Scheme can reduce paperwork, smooth cash flow and replace quarterly returns with a single annual submission.
The VAT Annual Accounting Scheme is open to most businesses with a taxable turnover of up to £1.35 million per year. Businesses using the scheme are required to submit one VAT return per year, rather than quarterly returns. This can significantly reduce the administrative time and cost associated with preparing and filing your VAT returns.
The scheme also allows businesses to make regular interim payments throughout the year, which can help with cash flow management. Interim VAT payments are made during the year based on the business’s estimated total VAT liability for the accounting period.
Interim payments can be made either monthly or quarterly and are followed by a final balancing payment submitted with the annual VAT return. The regular payments are usually based on the previous year’s VAT liability, which means they may be higher than necessary if turnover has fallen.
Where payments are made monthly, they are typically calculated as 10% of the estimated annual VAT bill and are due at the end of months 4 through 12 of the VAT accounting period. Where payments are made quarterly, they are usually calculated as 25% of the estimated VAT liability and are due at the end of months 4, 7 and 10.
The final balancing payment for the annual VAT return is due within two months of the end of the standard 12-month VAT accounting period. If VAT has been overpaid based on the estimated amounts, HMRC will refund the difference. Payments must be made electronically.
VAT road fuel scale charges are fixed, standardised amounts that businesses must use to account for output VAT when they provide fuel for private use in a vehicle that is also used for business purposes.
The VAT road fuel scale charges are published annually with the current figures applying from 1 May 2025 to 30 April 2026. The fuel scale rates are designed to encourage the use of cars with low CO2 emissions.
A business can use the VAT fuel scale charges to work how much VAT they need to pay back when a business car is used for private journeys. This approach removes the need to keep detailed mileage records. In practice, businesses should reclaim all the VAT on the fuel for the car, then use the fuel scale charge tool to work out the correct charge for the period. Once calculated, this amount needs to be included in the VAT owed on the VAT Return.
Where the CO2 emission figure is not a multiple of five, the figure is rounded down to the next multiple of five to determine the level of the charge. For a bi-fuel vehicle which has two CO2 emissions figures, the lower of the two figures should be used. There are special rules for cars which are too old to have a CO2 emissions figure.
If your business has relatively low VATable expenses, the VAT Flat Rate Scheme can simplify your VAT reporting and may also improve cash flow.
The VAT Flat Rate Scheme is designed to simplify VAT accounting for small businesses. Instead of calculating VAT on each sale and purchase, businesses pay a fixed percentage of their total turnover, including VAT. This percentage varies depending on the type of business activity and is set by HMRC.
The scheme reduces the complexity of VAT compliance by eliminating the need for detailed calculations and record-keeping of input VAT on purchases.
To be eligible for the scheme, a business must expect its annual taxable turnover (excluding VAT) to be no more than £150,000 in the next 12 months.
The advantages of the VAT Flat Rate Scheme include:
While the scheme can greatly simplify VAT reporting and reduce administrative burdens, businesses should regularly assess its suitability, as it may not always remain advantageous as a company expands or its circumstances change.
Exports from Great Britain or Northern Ireland can be zero-rated for VAT, provided businesses obtain valid export evidence within three months of sale and meet all HMRC documentation rules; accuracy and record-keeping are key to keeping the 0% rate.
Businesses are required to charge VAT on most goods that are sold within the UK. However, there are VAT exemptions in place on goods that you export outside of the UK.
Under the VAT rules, businesses can "zero rate" the sale of qualifying goods that are exported. Where this is the case this would mean that no VAT is charged on the goods.
This applies to:
To qualify for VAT zero-rating, businesses must ensure they have sufficient evidence that the goods were exported. This evidence should be obtained within three months of the ‘time of sale’. A longer period may apply in cases where goods need to be processed before export or for thoroughbred racehorses.
The ‘time of sale’ for VAT purposes is the earlier of when the goods are dispatched to the customer or when full payment is received.
It is important to note that businesses cannot zero-rate sales if a customer requests delivery to a UK address. If a customer arranges for collection from the seller (an indirect export), VAT zero rating may still be possible if certain conditions are met.
Maintaining accurate records and ensuring compliance with export requirements is essential to benefit from the VAT zero-rate provisions. Businesses must ensure that they hold proper export documentation and follow the guidelines carefully to avoid penalties and ensure the correct VAT rate is charged.
Not all goods and services carry a 20% VAT, knowing the right rate can save costly mistakes.
When a VAT-registered business issues an invoice to their customer, they must ensure that they charge the correct rate of VAT. Whilst most businesses in the UK charge VAT at the standard rate of 20% there are a number of different VAT rates and exemptions to be aware of. This includes the reduced VAT rate of 5% and the zero rate (0%).
There are two other categories that the supplies of goods and services can fall under:
If a business has made an error in charging VAT, then this needs to be corrected. The timing and amount of an error can impact on how the issue is resolved.
There are also penalties if you charge VAT to your customers before you are officially VAT registered. VAT registration is only required for eligible businesses earning more than £90,000 per year although businesses under the threshold can voluntarily apply for a VAT registration.
VAT relief is available on goods and services for people with long-term illnesses or disabilities.
There are special VAT reliefs available for certain people living with disabilities or long-term illnesses. These reliefs are generally available on certain products and services designed specifically for their personal or domestic use. This VAT relief covers not only the product itself but also installation, repairs, maintenance as well as related spare parts and accessories.
Eligible items typically include adjustable beds, stair lifts, wheelchairs, medical aids, low vision aids (excluding glasses or contact lenses) and home building works such as ramps, widened doorways or lifts. Motor vehicles purchased or leased through the Motability scheme may also qualify.
To benefit from this relief, the individual must meet HMRC’s criteria which usually covers those with a long-term physical or mental condition affecting daily life, chronic illnesses such as diabetes or terminal conditions. Age criteria alone, or temporary disabilities, do not qualify.
Buyers must provide a written declaration confirming their eligibility. Most suppliers will provide a standard form for this purpose.
For imported items, qualifying goods for personal use can benefit from VAT relief if they are properly declared.
Local councils may also offer support or funding for necessary home adaptations, helping ensure greater independence and quality of life for disabled individuals.
Struggling with late-paying customers? The VAT Cash Accounting Scheme helps protect cash flow by taxing only what you have received.
The VAT Cash Accounting Scheme is designed to support businesses by improving cash flow. Using this scheme means that VAT is only paid when your customer pays you and not when you issue an invoice. This means that if a customer fails to pay, the VAT is not payable to HMRC, offering a clear advantage for businesses that sell on credit.
In contrast, under standard VAT accounting, VAT is due whether or not you've been paid, which can create financial pressure if your customer is late in paying or does not pay.
To join the scheme, a business must have a VAT taxable turnover of £1.35 million or less in the next 12 months. Once in the scheme, a business can continue using it until their turnover exceeds £1.6 million.
You cannot use the Cash Accounting Scheme if:
There’s no formal application required. You can start using the scheme:
You can leave the scheme voluntarily at the end of any VAT period without notifying HMRC and rejoin again if you continue to meet the eligibility criteria.
Small business? The VAT Flat Rate Scheme could cut paperwork and improve cash flow. Pay VAT as a set percentage of turnover and enjoy simpler admin, budgeting ease, and even a 1% discount in year one of your registration for VAT.
The VAT Flat Rate Scheme is designed to simplify the process of VAT accounting for small businesses. Rather than calculating VAT on every sale and purchase, eligible businesses pay VAT as a fixed percentage of their turnover including VAT. The percentage applied depends on the type of business activity and is set by HMRC.
This scheme helps reduce the complexity of VAT compliance by minimising the need for detailed calculations and record-keeping of input VAT on purchases.
To join the scheme, a business must expect its annual taxable turnover (excluding VAT) to be no more than £150,000 in the next 12 months.
The advantages of the VAT Flat Rate Scheme include the following:
The scheme can be a valuable option for small businesses looking to simplify VAT reporting and reduce administrative workload. However, its suitability should be carefully assessed and regularly reviewed to ensure it remains beneficial as a business grows or its circumstances change.
