Can I Reclaim VAT on Building Materials for New Developments

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain Can I reclaim VAT on building materials for new developments in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.

This is one of the most valuable VAT questions in property and construction, because the difference between reclaiming VAT correctly and getting it wrong can run into tens or even hundreds of thousands of pounds. I deal with this regularly for developers, self builders, landlords, and construction businesses, and it is an area where assumptions are expensive.

The short answer is yes, in many cases VAT on building materials for new developments can be reclaimed, but only if very specific conditions are met. The longer answer explains who can reclaim it, when it can be reclaimed, how it must be invoiced, and where people most often fall into traps that lead to HMRC rejecting claims.

In this article, I will explain how VAT works on building materials for new developments in the UK, the difference between zero rating and VAT reclaims, how this applies to developers versus self builders, and the common mistakes I see in practice. This is based on real UK VAT rules and how HMRC applies them in the real world.

What HMRC Means by a New Development

Before looking at VAT recovery, it is essential to understand what counts as a new development for VAT purposes. The VAT definition is narrower than many people expect.

A new development usually means:

The construction of a completely new building

Built on land that previously had no building on it

Or replacing a building that has been demolished to ground level

In VAT terms, new build residential properties are usually zero rated, which is the foundation of most VAT recovery in this area.

Why New Builds Are Treated Differently for VAT

The UK VAT system deliberately treats new residential construction differently from renovations and refurbishments.

New residential buildings are zero rated because:

The government wants to encourage housebuilding

VAT would otherwise significantly increase housing costs

New homes are seen as essential infrastructure

Zero rating is what unlocks VAT recovery on building materials and related costs.

Zero Rated Construction Versus VAT Exempt Property

This distinction is critical.

New residential builds are generally zero rated, not exempt.

That means:

VAT is charged at 0 percent on qualifying construction work

VAT registered builders can reclaim VAT on their costs

Developers can recover VAT on materials and services

VAT works through the system rather than sticking as a cost

By contrast, most residential letting is VAT exempt, which blocks VAT recovery.

Many VAT problems arise from confusing these two categories.

Who Can Reclaim VAT on Building Materials

Whether VAT can be reclaimed depends heavily on who you are and how the project is structured.

The main categories are:

VAT registered property developers

VAT registered construction businesses

Self builders and private individuals

Landlords and investors

Each is treated differently.

VAT Registered Property Developers

If you are a VAT registered property developer building new residential properties for sale, the position is usually the most favourable.

In most cases:

Sales of new residential properties are zero rated

You must be VAT registered

You can reclaim VAT on building materials

You can reclaim VAT on construction services

VAT recovery happens through normal VAT returns

This applies provided the development genuinely qualifies as a new build and is not excluded by specific rules.

VAT Registered Construction Businesses

Construction businesses building new residential properties for clients often zero rate their work.

If you are the builder rather than the developer:

You charge VAT at 0 percent on qualifying construction services

You reclaim VAT on materials and overheads

VAT recovery is part of your normal VAT accounting

The key is having the correct zero rating evidence and certificates in place.

Self Builders and Private Individuals

Self builders are treated very differently from developers.

If you are a private individual building your own home and you are not VAT registered, you cannot reclaim VAT through VAT returns.

Instead, you may be able to reclaim VAT through the DIY Housebuilders Scheme.

This allows:

A one off VAT reclaim at the end of the project

Reclaim of VAT on qualifying building materials

No reclaim on labour in most cases

This scheme is strict, time limited, and paperwork heavy.

Landlords and Buy to Let Investors

This is where many people are disappointed.

Most residential letting is VAT exempt. That means:

You do not charge VAT on rent

You cannot usually reclaim VAT on costs

VAT on building materials often becomes a real cost

Even if the property is newly built, VAT recovery may be blocked if the intention is long term exempt letting rather than sale.

There are exceptions, but they are limited.

What Counts as Building Materials for VAT Reclaims

HMRC has a specific definition of building materials, and it is narrower than everyday language.

Generally, building materials must:

Be incorporated into the building

Become part of the fabric of the building

Be permanent and fixed

Typical qualifying materials include:

Bricks, blocks, cement, and timber

Roof tiles and roofing materials

Windows and doors

Plasterboard and insulation

Plumbing and electrical components

Built in kitchen units

Fixed bathroom suites

If it can be removed without damaging the building, it is often excluded.

Items That Are Commonly Excluded

Some items frequently cause disputes because people assume they qualify when they do not.

Common exclusions include:

Freestanding appliances

White goods

Furniture

Carpets and floor coverings

Curtains and blinds

Garden landscaping

Decorative items

These are usually standard rated and not reclaimable under new build VAT rules.

VAT on Labour Versus VAT on Materials

The VAT treatment of labour and materials is different.

For new residential builds:

Qualifying construction labour is usually zero rated

Building materials bought directly may have VAT charged

That VAT can often be reclaimed if you are entitled to recover VAT

This difference often surprises people who expect everything to be zero rated automatically.

Invoicing Is Absolutely Critical

One of the biggest reasons VAT reclaims fail is incorrect invoicing.

To reclaim VAT on building materials:

The invoice must be addressed to the correct entity

The invoice must show VAT separately

The supplier must be VAT registered

The description must clearly relate to the build

Invoices made out to the wrong person or company are one of the most common reasons HMRC rejects claims.

Timing of VAT Reclaims

Timing matters.

For VAT registered developers:

VAT is reclaimed through quarterly VAT returns

Recovery happens as costs are incurred

For self builders:

VAT is reclaimed in one claim at the end

Claims must be made within strict deadlines

Missing the deadline usually means losing the reclaim

HMRC is very unforgiving on deadlines in this area.

What About Renovations and Conversions

This is where many people get caught out.

Renovations and refurbishments are not new builds for VAT purposes.

In most cases:

VAT on materials is standard rated

VAT on labour is standard rated

VAT recovery is limited or blocked

There are reduced rate reliefs for some conversions and empty properties, but these are not the same as new build zero rating.

VAT on Demolition and Rebuilds

Demolition followed by a full rebuild can qualify as a new build, but only if:

The original building is demolished to ground level

The new building is genuinely new

Planning permission supports this

Partial demolitions rarely qualify.

This is an area where professional advice before starting work is extremely valuable.

Mixed Use Developments

Mixed use developments introduce additional complexity.

If a development includes:

Residential units

Commercial units

Retail space

VAT recovery must often be apportioned.

Residential elements may be zero rated. Commercial elements may be standard rated. The split must be calculated correctly.

This is an area HMRC looks at very closely.

Partial Exemption Issues

If a developer makes both taxable and exempt supplies, partial exemption rules may apply.

This can restrict VAT recovery on shared costs.

Zero rated sales help VAT recovery. Exempt rental income usually restricts it.

Understanding this early can affect how projects are structured.

Common Mistakes I See in Practice

When reviewing VAT reclaims on new developments, I regularly see the same issues.

These include:

Assuming all building materials are reclaimable

Incorrect or missing invoices

Buying materials personally rather than through the business

Confusing zero rating with exemption

Missing DIY scheme deadlines

Treating renovations as new builds

These mistakes are often irreversible once HMRC has refused a claim.

How HMRC Reviews VAT Claims on New Developments

HMRC is particularly cautious with property VAT claims.

They will often request:

Planning permissions

Building control certificates

Detailed invoices

Proof of use and intention

Evidence of zero rating eligibility

Claims can take months to process and may be queried in detail.

Practical Advice Before You Start Building

In practice, my advice is always the same.

Before you spend significant money:

Confirm whether the project qualifies as a new build

Confirm who should be buying materials

Confirm VAT registration position

Confirm intended use of the property

Get advice before invoices are raised

VAT planning in construction must happen before the build, not after.

My Professional View

In my professional opinion, VAT on building materials for new developments is one of the biggest legitimate VAT recovery opportunities available in the UK.

It is also one of the easiest areas to get wrong.

The rules are generous but precise. If you meet the conditions, VAT recovery can be substantial. If you miss them, VAT becomes a permanent cost.

Final Thoughts

So, can you reclaim VAT on building materials for new developments?

Yes, often you can, especially for genuine new residential builds. But entitlement depends on who you are, how the project is structured, how invoices are raised, and how the finished property will be used.

Zero rating unlocks VAT recovery. Exemption blocks it. Invoicing errors can destroy otherwise valid claims. Deadlines matter more than people realise.

In my experience, the developers and self builders who get this right are the ones who plan VAT from day one rather than trying to fix it at the end. When it comes to VAT on new developments, preparation is everything.

You may also find our guidance on Can I reclaim VAT on property development costs and How are property developers taxed differently from landlords useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.