Tag Archives: input-tax

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

By   20 July 2026
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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   13 July 2026
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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

By   7 July 2026
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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

By   3 July 2026
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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.

VAT: Consignment and call-off stock

By   15 June 2026
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VAT basics

Consignment, call-off stock, and sale or return goods

If a business is required to provide regular sales of goods to customers, a prudent business structure is to keep inventory in a warehouse near the customer, or which belongs to the customer. This is likely to reduce transport costs and provides quicker access to the goods thus reducing time in the supply chain.  There are specific VAT rules for businesses which hold stock in foreign countries. They stipulate when, and what VAT should be charged, and if a business needs to VAT register as a non-resident trader in another country in which it is warehousing its goods.

Below we consider what the terms mean, the differences and the VAT treatment applicable.

Differences 

There is often confusion over the terms; consignment and call-off stock, and they are sometimes used interchangeably. They are differentiated based on who controls access to, and use of, the goods. The difference determines the VAT requirements and compliance rules, so it is important to identify the actual arrangements a business has in place, or plan for the most beneficial outcome. Both of these measures involve the transfer of a business’ own goods – for the purposes of this article; cross-border. The transfer of goods within the same legal entity from one country to another is a deemed supply. This fact is sometimes missed, which can lead to problems.  The VAT rules differ from country to country and create legal uncertainty for businesses. 

In summary

  • Consignment stock

Consignment stocks are created when a business transfers its own goods to another Member State to create a stock over which it has control and from which it makes supplies. Typically, there are multiple potential customers for consignment stock.

Note: Goods sent to an overseas customer on sale or return are treated in the same way as consignment stocks.

  • Call-off stock

Call-off stock is the transfer of goods by a business from one Member State to another to create a stock of goods from which its customers can ‘call-off’ ie; use and pay for the goods as and when they require them.

Not call-off stock

Goods delivered to storage facilities operated by the supplier, rather than the customer, should be treated as consignment stocks (see above). If stocks of goods are dispatched by a supplier for call-off by more than one customer, this is also likely to be consignment stock.

VAT treatment

Consignment stock

There is an initial deemed supply of own goods to form the stock which takes place in the country from which the goods are originally shipped. This is usually VAT free as a dispatch and the usual documentary requirements apply.

The place of subsequent supplies of the goods, once a buyer has been found (change of ownership) is usually the country in which the stock is held.

Because the business is transferring its own goods “to itself” in another country it will be making an acquisition of goods in that country. The business is likely to be liable to register for VAT there (or appoint a fiscal representative in the country of arrival) and be responsible for import obligations in the other country. Output tax will also be due (at the rate of VAT applicable in the country in which the goods are located) on the sale to a third party.

Consignment stock – reporting requirements

If a UK VAT registered business transfers goods to another country to create a consignment stock it must complete box 6 on the VAT return reporting a value based on the cost of the goods – see HMRC Public Notice 725. 

Call-off stock

As the customer has control of the goods in storage, is aware of stock movements, and may take stock whenever he requires this does not generally require the seller to VAT register in the foreign country as a non-resident trader. Such sales are treated as a “regular’ export and the seller is required to show the customer’s VAT number etc on invoices and other documentation in order to treat it as VAT free in the usual way. The time of supply for these supplies is the date the goods are called off by the customer. 

Call-off stock – reporting requirements 

The supply of call-off stock from the UK to a VAT registered business in another country is VAT free (subject to the normal rules). Box 6 of the VAT return should be completed using a value based on the cost of the goods as above.

Business Entertainment VAT Notice 700/65 updated

By   9 June 2026
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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   8 June 2026
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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.

Updated VAT Notice 742A – Opting to tax land and buildings

By   2 June 2026
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HMRC has updated Notice 742A which explains the effect of an option to tax and will help a business decide whether to exercise that option. It also sets out whether an optor needs permission from HMRC before an option can be made and how to notify HMRC of a decision.

The update clarifies an important point: where opted land or building remain an asset on hand at the point of VAT registration cancellation, output tax must be accounted for on the value of that asset. The update also removes the information about a temporary change to the time limit for notifying an option as this has ended.

VAT Success Stories

By   26 May 2026
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I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

Investment company

HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

We were able to persuade HMRC that our client had a right to be VAT registered because It intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £200,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

Developer

Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

Charity

A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome.  We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way. If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

Shoot

A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

Chemist

We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years.  We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due.  We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

The message? Never accept a HMRC decision, and seek good advice!

The penalty regime…the dark side of VAT

By   29 April 2026
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VAT Penalties

I have made a lot of references to penalties in other articles over the years. So I thought it would be a good idea to have a closer look; what are they, when are they levied, rights of appeal, and importantly how much could they cost if a business gets it wrong?

Overview

Broadly, a penalty is levied if the incorrect amount of VAT is declared, either by understating output tax due, or overclaiming input tax, or accepting an assessment which is known to be too low.

Amount of penalty

HMRC detail three categories of inaccuracy. These are significant, as each has its own range of penalty percentages. If an error is found to fall within a lower band, then a lower penalty rate will apply. Where the taxpayer has taken ‘reasonable care,’ even though an error has been made, then no penalty will apply.

  • An error, when reasonable care not taken: 30%;
  • An error which is deliberate, but not concealed: 70%;
  • An error, which is deliberate and concealed: 100%.

Reasonable care

There is no definition of ‘reasonable care’. However, HMRC have said that they would not expect the same level of knowledge or expertise from a self-employed person, as from a large multi-national.

HMRC expect that, where an issue is unclear, advice is sought, and a record maintained of that advice. They also expect that, where an error is made, it is adjusted, and HMRC notified promptly. They have specifically stated that merely to adjust a return will not constitute a full disclosure of an error. Therefore, a penalty may still be applicable.

Notification

Further, where there is an ‘unprompted disclosure’ of the error, HMRC have power to reduce the penalty further. This measure is designed to encourage businesses to review their own VAT returns.

A disclosure is unprompted if it is made at a time when a person had no reason to believe that HMRC have discovered or are about to discover the inaccuracy. The disclosure will be treated as unprompted even if at the time it is made, the full extent of the error is not known, as long as fuller details are provided within a reasonable time.

What the penalty is based on

The amount of the penalty is calculated by applying the appropriate penalty rate (above) to the ‘Potential Lost Revenue’ or PLR. This is essentially the additional amount of VAT due or payable, as a result of the inaccuracy, or the failure to notify an under-assessment. Special rules apply where there are a number of errors, and they fall into different penalty bands.

Defending a penalty

The percentage penalty may be reduced by a range of ‘defences:’

– Telling; this includes admitting the document was inaccurate, or that there was an under-assessment, disclosing the inaccuracy in full, and explaining how and why the inaccuracies arose;

– Helping; this includes giving reasonable help in quantifying the inaccuracy, giving positive assistance rather than passive acceptance, actively engaging in work required to quantify the inaccuracy, and volunteering any relevant information;

– Giving Access; this includes providing documents, granting requests for information, allowing access to records and other documents.

HMRC have included a provision whereby a penalty can be suspended for up to two years. This will occur for a careless inaccuracy, not a deliberate inaccuracy. HMRC will consider suspension of a penalty where, given the imposition of certain conditions, the business will improve its accuracy. The aim is to improve future compliance and encourage businesses which genuinely seek to fulfil their obligations.

Appealing a penalty 

HMRC have an internal reconsideration procedure, where a business should apply to in the first instance. If the outcome is not satisfactory, the business can pursue an appeal to the First Tier Tribunal. A business can appeal on the grounds of; whether a penalty is applicable, the amount of the penalty, a decision not to suspend a penalty, and the conditions for suspension.

The normal time limit for penalties to four years. Additionally, where there is deliberate action to evade VAT, a 20 year limit applies. In particular, this applies to a loss of VAT which arises as a result of a deliberate inaccuracy in a document submitted by that person.

These are just the penalties for making “errors” on VAT returns. HMRC have plenty more for anything from late registration to issuing the wrong paperwork.

Even darker

There are even more severe penalties for deliberate acts, including significant terms of imprisonment. That is the subject of another article.

Assistance

My advice is always to check on all aspects of a penalty and seek assistance for grounds to challenge a decision to levy a penalty. We have a very high success rate in defending businesses against inappropriate penalties.  It is always worth running a penalty past us.