Category Archives: VAT – Input Tax

VAT – Building your new home: How and what to claim

By Marcus Ward 20 July 2026

The DIY Housebuilders’ Scheme

Building your own home is becoming increasingly popular. There are many things to think about, and budgeting is one of the most important.

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

By Marcus Ward 13 July 2026

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 on mobile phones – update

By Marcus Ward 3 July 2026

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.

Business Entertainment VAT Notice 700/65 updated

By Marcus Ward 9 June 2026

HMRC Notice 700/65 has been updated. The ‘Business entertainment’ section has been amended to confirm persons who are, and are not, employees for the purpose of the recovery of input tax incurred on business entertainment.

A common day-to-day question is whether input tax incurred on entertainment is claimable. The answer to this seemingly straightforward question has become increasingly complex as a result of; HMRC policy, EU involvement, and case law.

I have looked at this subject in more depth here and this article also includes a helpful flowchart.

VAT and pension scheme services

By Marcus Ward 8 June 2026

In Revenue and Customs Brief 4 (2025) of June last year HMRC announced that employers can now reclaim all VAT incurred on investment costs linked to pension funds (they no longer need to split the costs with pension trustees). If trustees are providing pension fund management services and charging the employer, they can also claim back VAT on their costs, if they are VAT-registered.

HMRC have now updated its internal guidance on such input tax recovery. According to the new guidance, HMRC now consider for full recovery of VAT charged on any scheme-related service, sponsoring employers must have directly contracted for that service and HMRC no longer recognise any distinction between administration and investment services.

New VAT Road Fuel Scale Charges from 1 May 2026

By Marcus Ward 21 April 2026

HMRC has published new VAT Road Fuel Scale Charges (RFSC) which apply from 1 May 2026 to 30 April 2027.

These provide details on the charges from 1 May 2026 to be used on a business’ VAT return and must be used from the start of the next prescribed accounting period beginning on or after 1 May 2026.

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.

A business will need to calculate the correct RFSC based on a car’s CO2 emissions, and the length of its VAT accounting period. This will be either one, three, or twelve months. The CO2 emissions figure may be found here if the information is not available in the log book.

VAT: Crowdfunding – What is taxable?

By Marcus Ward 9 April 2026

What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.

Crowdfunding is a major, growing source of funding for startups, charities, and creative projects, with the global market predicted to grow annually by around 15% from 2026 to 2033 with platforms like Kickstarter, Seedrs, Crowdcube, and GoFundMe being major players.

VAT Treatment

The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.

Examples

Donations

where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar

Goods and/or services

where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due

Combination

where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable

Investment

where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes

Royalties

if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due

Loan-based

Individuals lend money to businesses or people for interest payments. The making of any advance or the granting of any credit is exempt.

VAT registration

If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £90,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.

Input tax recovery

If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities. If exempt supplies are made, attributable input tax is generally blocked unless it is de minimis.

Commentary

There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.

A VAT did you know?

By Marcus Ward 30 March 2026

Around 50% of businesses do not recover VAT incurred overseas and there is an estimated $5 billion not reclaimed each year.

VAT: Recovery of input tax on fuel costs

By Marcus Ward 23 March 2026

Fuel costs

Road Fuel Scale Charge (RFSC) simplification.

It is common for a staff member to use a car for both business and private purposes (a staff member also covers sole proprietors and partners). Input tax is only recoverable in respect of the business use, so an apportionment is required. This may be done in the following ways.

Apply the RFSC. This is a set figure per month which represents a disallowance for private use and is repaid to HMRC
Keep detailed mileage records and only claim for the business element
If a business pays a mileage allowance for exact business miles travelled it may reclaim input tax on that actual payment. HMRC publish approved Advisory Fuel Rates, which are used to calculate the payments and the recoverable VAT
Do not make a claim at all (if business mileage is minimal or the administration outweighs the cost benefit)

Application

One RFSC must be applied for each car that is used both privately and for business. The fuel scale charges are calculated according to a car’s CO2 emissions and the fixed charge is added to the output figure on the VAT return.

A business will need to check the relevant car’s CO2 emissions figure. This is available for the car’s log book. For dual fuel cars, the lower of the two figures is used.

The calculation

The RFSC allows a business to account for the VAT on fuel in monthly, quarterly or annual returns. When calculating VAT on fuel, if the relevant car has a CO2 emission of 160g, and the business files quarterly returns, the VAT inclusive consideration for a three-month period is £363.00.

The RFSC for the private use of the vehicle will then be calculated as follows: £363.00 x 1/6 (the VAT fraction of the total figure) = £60.50

In this example, the VAT output tax due to HMRC is £60.50 and this is included in Box 1 of the VAT return.

This amount will compensate for any private use of fuel where VAT has already been claimed on the initial purchase of the fuel.

Notes

If a business uses the Flat Rate Scheme no VAT is reclaimable on fuel and no scale charge is applicable.

The RFSC does not apply to commercial vehicles (vans, lorries etc) however, if there is a significant level of private mileage, VAT claims should be adjusted to exclude input tax on this.

HMRC publish updated RFSC valuation tables annually. The latest table is here

Input tax claims may be restricted due to partial exemption or non-business activities.

Help

HMRC have also published a useful ready reckoner tool which assists with the process here

Mileage payments

If a business recovers input VAT based on mileage payments made to employees, it must ensure that employees submit fuel VAT receipts evidencing that they have incurred costs and VAT on fuel. Without such receipts, HMRC may deny the VAT recovery on mileage reimbursements. Clearly, the total VAT incurred on fuel must exceed the business element claimed.

EVs

Details on charging electric vehicles here and here

VAT: HMRC clarifies the Domestic Reverse Charge does not apply to EV charging

By Marcus Ward 17 March 2026

HMRC has updated its Notice 735 which explains why the Domestic Reverse Charge (DRC) does not apply to electric vehicles (EVs).

The legislation for the DRC for electricity was designed to exclude supplies of electricity made under supply licences (supply electricity). It also excludes resale supplies of electricity made between the person holding the supply licence and the person making the supply to the consumer of the electricity (the vehicle user).

This means that the reverse charge does not apply to the supply of electricity at a charging point for EVs. This is because either the vehicle user is not VAT registered, or because it is not a wholesale supply. This applies whether or not the electricity is supplied at a public charging point.

Wholesale has an ordinary meaning where the supply is business to business and there is little or no consumption of the supply. EV charging does not fall within this definition.

For the latest case law on public EV charging see here.