There are two primary ways of mitigating VAT - through VAT relief and VAT reclaim.

Only certain types of residential development permit VAT relief:

  • New Build residential
  • Changing the number of dwellings within a building
  • Renovation of uninhabited dwellings
  • Conversion from non-residential into residential use
  • Works to facilitate use of a building by the disabled
  • Certain construction schemes for charitable organisations
  • Installing specific Energy Saving Materials
  • Adaptations to Listed Buildings [NOW LARGELY REMOVED]

VAT relief is applied at source in the form of Contractors invoices being charged at the applicable lower rate. It is based upon the type of building and the nature of the work and once given is rarely removed.

VAT reclaim however, is limited to certain developments where the completed properties are to be disposed of. Whilst VAT reclaim may appear easier to implement than VAT relief; it is always open to re-evaluation and potential clawback by HMRC.

We can identify precisely which form of VAT relief your development qualifies for, provide the mandatory Audit trails and evidence needed by your Contractor – and should VAT reclaim be allowed – minimise the impact of HMRC claw-back and penalties.


It is important to make the distinction between VAT reclaim and VAT relief. VAT reclaim is for VAT-registered businesses and hinges on the property being used for a VAT able ‘trade’ – meaning owners and developers can rarely reclaim VAT on renovations, refurbishments or conversions of residential schemes.

VAT relief by contrast is based upon the type of property and nature of work, not on who will occupy the building (it is irrelevant whether the building is retained, sold or let). As VAT relief is only available on Contractors invoices (and not on supplies of materials) it is imperative a Contractor holds the necessary evidence and detail as to which costs attract which rate of VAT – indeed the legal ‘default’ position is that without this; VAT must be levied in full.


You can contact our Free VAT Helpline 24 hours a day using the online form or email

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    Berthold BauerResidential