Scottish snowballs VAT free, but if you buy Swedish snowballs, they are standard rated.
Monthly Archives: July 2026
VAT: New zero rate for domestic electricity
The government has announced that the VAT rate for domestic electricity will be reduced from 5% to zero from 1 October 2026 in advance of winter costs.
It is stated that the government expects that suppliers will pass the VAT reduction on to their customers (including those on fixed tariffs).
The VAT cut, from 5% to 0%, is estimated to reduce CPI inflation by around 0.10 percentage points and RPI by around 0.14 percentage points.
This action is estimated to cost around £850 million in 2026-27 on the basis of estimated electricity prices and will be funded by the cancellation of the Digital ID programme.
VAT – Building your new home: How and what to claim
The recovery of VAT on the project has a huge impact on the budget and care must be taken to ensure that a claim is made properly and within the time limits. You don’t have to be VAT registered to make a claim, this is done via a mechanism known as The DIY Housebuilders’ Scheme. It has specific rules which must be adhered to otherwise the claim will be rejected.
If you buy a new house from a property developer, you will not be charged VAT. This is because the sale of the house to you will be zero-rated. This allows the developer to reclaim the VAT paid on building materials from HMRC. However, if you build a house yourself, you will not be able to benefit from the zero-rating. The DIY Housebuilder’ Scheme puts you in a similar position to a person who buys a zero-rated house built by a property developer.
Who can make a claim?
You can apply for a VAT refund on building materials and services if you are:
- building a new home in which you will live
- converting a building into a home
- building a non-profit communal residence, eg; a hospice
- building a property for a charity
Eligibility
New homes
The house must:
- be separate and self-contained eg; not an extension
- be for you or your family to live or holiday in (not for sale when complete)
- not be for business purposes (although you can use one room as a work from home office)
- not be prevented from sale independently to another building by planning permission or similar eg; a granny annexe
A claim may also be made for garages built at the same time as the house and to be used with the house.
Contractors working on new residential buildings should zero rate their supplies to you, so you won’t pay any VAT on these.
Conversions
The building being converted must usually be a non-residential building eg; a barn conversion. Also, residential buildings qualify if they haven’t been lived in for at least 10 years.
You may claim a refund for builders’ work on a conversion of non-residential building into home. These supplies will be charged at the reduced rate of 5% for conversion works. If the standard rate of 20% s charged incorrectly, you will not be able to claim the standard rated amount. Care should be taken that the contractor understands the VAT rules for conversions as these can be complex.
Communal and charity buildings
You may get a VAT refund if the building is for one of the following purposes:
- non-business – you can’t charge a fee for the use of the building
- charitable, eg; a hospice
- residential, eg; a children’s home
What can you claim on?
Building materials – You may claim a VAT refund for building materials that are incorporated into the building and can’t be removed without tools or damaging the building.
What doesn’t qualify
You cannot claim for:
- building projects outside the UK
- materials or services that don’t have any VAT, eg; were zero-rated or exempt
- professional or supervisory fees, eg; architects and surveyors
- the hire of plant, tools and equipment, eg; generators, scaffolding and skips
- building materials that aren’t permanently attached to or part of the building itself
- some fitted furniture, electrical and gas appliances, carpets or garden ornaments
- supplies for which you do not have a VAT invoice
Examples of items you can, and cannot claim for are listed below.
How to claim
Submit your DIY housebuilders VAT claim using HMRC’s official Digital Claim Service. Alternatively, download and print the VAT431NB Form (for new builds) or VAT431C Form (for conversions) to apply by post.
What you need to know
You must claim within six months of the building work being completed.
You will usually get the refund in 30 working days of sending the claim.
You must include the following with your claim:
- bank details
- planning permission
- proof the building work is finished eg; a letter from your local authority
- a full set of building plans
- invoices – including tenders or estimations if the invoice isn’t itemised
- bills and any credit notes
VAT invoices must be valid and show the correct rate of VAT or they will not be accepted in the claim.
HMRC usually examine every claim closely and often query them, so it pays to ensure that the claim is as accurate as possible first time. We find a review by us before submission ensures the maximum amount is claimed and delays are avoided.
Payments made after completion of the house cannot be claimed, and only one claim can be made for the whole project, so cashflow may be an issue.
Examples of items that you can claim for
The items listed below are accepted as being ‘ordinarily’ incorporated in a building (or its site). This is not a complete list.
- air conditioning
- building materials that make up the fabric of the property eg; bricks, cement, tiles, timber, etc
- burglar and fire alarms
- curtain poles and rails
- fireplaces and surrounds
- fitted kitchen furniture, sinks, and work surfaces
- flooring materials (other than carpets and carpet tiles)
- some gas and electrical appliances when wired-in or plumbed-in
- heating and ventilation systems including solar panels
- light fittings – including chandeliers and outside lights
- plumbing materials, including electric showers, ‘in line’ water softeners and sanitary ware
- saunas
- turf, plants, trees (to the extent that they are detailed on scheme approved by a Planning Permission) and fencing permanently erected around the boundary of the dwelling
- TV aerials and satellite dishes
Examples of items that you cannot claim for
This is not a complete list.
- Aga/range cookers (unless they are solid fuel, oil-fired or designed to heat space or water)
- free-standing and integrated appliances such as: cookers, fridges, freezers, dishwashers, microwaves, washing machines, dryers, coffee machines
- audio equipment, built-in speakers, intelligent lighting systems, satellite boxes, Freeview boxes
- consumables eg; sandpaper, white spirit
- electrical components for garage doors and gates
- bedroom furniture (unless they are basic wardrobes) bathroom furniture eg; vanity units and free-standing units
- curtains and blinds
- carpets and rugs
- garden furniture and ornaments and sheds
The Scheme can be complex, but here is our Top Ten Tips for claimants.
Please contact us if you require assistance with a DIY Housebuild project.
VAT: Changes to the Capital Goods Scheme
HMRC has produced a policy paper on the simplification of the Capital Goods Scheme (CGS).
The CGS is a mechanism for adjusting an input tax claim which requires a business to spread the initial input tax claimed over a number of years. If a business’ taxable use of the asset increases, it is permitted to reclaim more of the original VAT and if the proportion of the taxable supplies decreases it will be required to repay some of the input tax initially claimed. The use of the CGS is mandatory.
HMRC says its measure details the simplification of the CGS to reduce the administrative burden for VAT registered businesses.
From 29 July 2026:
- computers and items of computer equipment will be removed from the list of assets covered by the scheme
-
the expenditure threshold for land, buildings and civil engineering work will increase from £250,000 (exclusive of VAT) to £600,000 (exclusive of VAT).
Existing assets and expenditure incurred before that date will continue to be treated under the current rules.
The Value Added Tax (Amendment) Regulations 2026 has been made to implement these changes.
The lifting of the CGS threshold for land and buildings is long overdue, but nevertheless welcome.
VAT: HMRC Tax Update 2026: Simplification, Modernisation and Fairness
HMRC has published Tax Update 2026: Simplification, Modernisation and Fairness which announces “a package of tax and customs measures to reduce administrative burdens, improve certainty, fairness, and customer experience”.
The main VAT matters are:
Digitising the option to tax process
The government will introduce new digital channels for submitting option to tax notifications and revocations, replacing existing paper-based processes. This change will make it easier for businesses and agents to manage VAT option to tax notifications, improving accuracy, reducing processing times and removing reliance on paper forms. It will incorporate industry requirements, including bulk uploads, for option to tax notifications, revocations and VAT registration cancellations. It will also support a more efficient and secure digital experience for taxpayers. These channels will be live before the end of 2026.
Direct Debit payments
HMRC is consulting on making Direct Debit the default payment method for VAT (and PAYE) return liabilities, with a shift away from manual bank transfers, CHAPS and Faster Payments which are currently the most used methods for business’ VAT settlement. This is presented as a simplification measure, but will require businesses to revisit treasury controls, mandates, and authorisation processes — particularly for groups with centralised treasury or multiple bank accounts.
Supplementary Data for VAT Returns
The government will explore whether better use of VAT data that businesses already hold in their digital accounting systems could help HMRC work more efficiently. This work will consider how data already held within the businesses’ digital accounting systems for audit purposes could be used to support compliance and improve the effectiveness of the tax system. Engagement with stakeholders will inform any future decisions.
Online Marketplace Liability
The government has published a consultation seeking views on the proposed extension of the VAT online marketplace liability rules to UK based businesses. The proposed reforms intend to tackle VAT non-compliance from overseas and UK based businesses which can distort competition and place compliant businesses, both online and on the high street, at a disadvantage. The government intends to minimise impacts on genuine UK businesses not required to pay VAT, and is seeking views on options to do so.
Electronic Sales Suppression Software Standards (ESS)
The government has published a consultation on the introduction of software standards for the Electronic and Mobile Point of Sale (EPOS/MPOS) Sector to explore how best to embed standards across the latest products and innovations. This consultation seeks views from businesses, software developers and wider stakeholders on measures designed to prevent electronic sales suppression and support fair competition on the high street. The government aims to ensure any future approach minimises burdens on compliant businesses, and believes that strengthened controls, such as modern encryption and record standardisation in the EPOS sector, have the potential to dramatically reduce the incidence of ESS or ‘till fraud’.
VAT on mobile phones – update
HMRC has updated Notice 700 to reflect the type of mobile ‘phone contracts and packages currently available and the VAT treatment of them. Details below, however, the salient issue with the update is that no input tax recovery is available if an employee has a contract in their own name (not the business itself).
VAT on the purchase or lease of a mobile phone
If a business provides its employees with mobile phones for business use, it can treat the VAT it incurs on purchasing or leasing a phone as input tax. This includes line rental charges where applicable, regardless of whether private use is allowed.
VAT on mobile phone call package and other charges
Business only
If a business incurs a recurring fixed monthly fee covering a package of calls, SMS and data, HMRC accepts that all the input tax incurred is recoverable.
If a business does not allow its employees to make private calls, all of the VAT incurred on call charges is input tax. HMRC accepts this where the business has clear rules prohibiting private use and enforces those rules.
HMRC accepts minimal private use as insignificant for VAT purposes and will not prevent the business from recovering all the VAT incurred on calls and mobile phone packages as input tax.
Charges for private calls
If a business charges employees for private use of their mobile phone it may treat the VAT incurred on that use as input tax but must account for output tax on the amounts charged.
If a business allows private use without charge, it must apportion the VAT incurred and recover only the part that relates to business use.
Method of apportionments
Businesses can choose any apportionment method that suits their circumstances, provided it produces a fair and reasonable result.
VAT on broadband connections
Where a business enters into a contract and pays for a fixed monthly charge for a broadband connection either mobile or cable to an employee’s home to enable them to work remotely, input tax can be recovered on the cost of providing the connection. This also applies to routers, installation charges and call bundles.
Some private use usually occurs, eg; entertainment packages or out of bundle charges etc. In such cases an apportionment should be made to restrict input tax recovery to only the business use of the service.
Mobile phone or broadband costs bought by the employee.
Where a business pays for a mobile, broadband or a package contract entered into by an employee with the service provider, no input tax is recoverable by the business. This is because the contract for the supply of services is between the provider and the employee, meaning the supply is made to the employee rather than to the business.