I had a troubling call from North Wales yesterday. The caller had just completed the restoration of a derelict cottage. It had been empty for seven years. As is his right, and as I have been advocating, he put in a claim to the local Customs and Excise office to reclaim his VAT under the VAT refund scheme.
The general and rather strange rule on VAT on restorations is that all building costs (materials and labour) are liable for VAT at 17.5%. New build properties however, are zero-rated.
This gives a perverse incentive to build new houses when restoring existing ones may make more sense. The VAT rules on empty homes were changed in 2000 to try to overcome this. They partly succeeded. Put simply, restoration of homes that have been empty for less than 3 years VAT is charged at the full 17.5%. Homes empty for between 3 and 10 years VAT charges are 5%, and for homes empty for more than 10 years VAT is zero-rated. Details are set out in HM Customs and Excise Notice 708
My Welsh caller had carried out all the work himself and so had incurred no labour costs his claim was for 12.5% of the material costs (17.5% - 5%). To his (and my) surprise Customs and Excise said that he was a DIY builder and could only claim under the DIY builders and converters scheme. This scheme is essentially there to enable self-builders to be able to reclaim VAT for new build. Details are set out under Notice 719. The notice makes no mention of properties empty for between 3 and 10 years and so my caller’s claim was rejected.
This case may have been a one-off or a mistake. I sincerely hope so. If not it appears that there is now one rule for developers and another for DIY builders. Lots of homes have been empty for between 3 and 10 years and there are many budding DIYers out there who are trying to rescue them. They should be given every encouragement we can give them.