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www.auditregister.org.uk under number 8011438
If you build your own house or convert an existing property into a home, you may be eligible to apply for a VAT refund on building materials and services. You do not need to be VAT registered to claim a refund.
Refunds can be claimed in respect of building materials that are incorporated into the building and which cannot be removed without tools or without damaging the building. Refunds are available for materials used to build both new homes and for certain conversions.
A new home will qualify if it is separate and self-contained and you build it for you and your family to live in. The property must not be used for business purposes, although you are permitted to use one room as a home office. Conversions will qualify if the property was previously used for non-residential purposes and is converted for residential use.
Conversions of residential building will only qualify if they have not been lived in for at least 10 years.
Where you use a builder, the builder’s services will normally be zero-rated where they work on a new home. However, you can claim a refund for VAT charged by a builder working on a conversion.
What does not qualify?
Refunds are not available in respect of:
• materials or services on which no VAT is payable because they are zero-rated or exempt;
• professional fees, such as architects’ fees or surveyors’ fees;
• costs of hiring machinery or equipment;
• building materials which are not permanently attached to or part of the building;
• fitted furniture, some gas and electrical appliances, carpets and garden ornaments.
A refund is also denied if the building is not capable of being sold separately, for example, as a result of planning restrictions.
How to claim
The claim is made on form 431NB where it relates to a new build and on form 431 where it relates to a conversion. The forms are available on the Gov.uk website. The claim must be made within three months of the date on which the building work was completed.
You must include all the relevant supporting documentation with your claim, such as valid VAT invoices to support the amount claimed. The refund will normally be issued within 30 days of making the claim.
Partner note: www.gov.uk/vat-building-new-home/eligibility.
HMRC produce a series of toolkits which set out common errors that they find in returns. The hope is that by being familiar with the mistakes that are routinely made, steps can be taken to avoid them. Although the toolkits are aimed primarily at agents, they are useful for anyone who has to complete a tax return. The director’s loan accounts toolkit highlights the key areas of risk in relation to directors’ loan accounts. The latest version of the toolkit was published in May 2019 and should be used for personal tax returns for 2018/19 and for company returns, for the financial year 2018.
Expenses are only deductible in computing taxable profits to the extent that they are incurred wholly and exclusively for the purposes of the trade. A company is a separate legal entity to the directors and shareholders. However, many close companies meet director’s personal expenses. Where these are not part of the director’s remuneration package, the company cannot deduct the cost when computing its taxable profits. Instead, they should be charged to the director’s loan account. The director’s loan account toolkit focuses on expenses that do not form part of the director’s remuneration package.
1. Review of the accounts - any personal expenditure incurred by the director and paid for by the company must be allocated correctly, i.e. an allowable expense where it forms part of the director’s remuneration package and charged to the director’s loan account. Account headings should be reviewed to identify director’s personal expenditure which has not been treated correctly.
2. Loans to participators – under the close company rules, tax (section 455 tax) is charged at 32.5% on loans to directors who are also shareholders where the loan remains outstanding nine months and one day after the end of the accounting period. Review overdrawn loan accounts to check whether the company is liable to pay section 455 tax.
3. Review of expenses and benefits – where a director is provided with anything other than pay, it may need to be reported to HMRC as a benefit in kind on form P11D. Review expenses and benefits for taxable items that may have been missed. It should be noted that if the director’s loan account balance exceeds £10,000 at any point in the tax year, a benefit in kind charge will arise on the loan unless the director pays interest at a rate that is at least equal to the official rate (2.5% since 6 April 2017).
4. Self-assessment – check whether the director needs to send a self-assessment return. The directors’ loan accounts toolkit states that “Company directors do not need to send a tax return unless that have other taxable income that needs to be reported, or if HMRC has sent a notice to file a return”.
5. Record keeping – good keeping is essential. Poor records may mean expenditure is missed or allocated incorrectly.
The toolkit features as useful checklist which can be completed to make sure that nothing is overlooked.