Wednesday, September 19, 2007

Vat reclaim reveals selfbuild figures

I have been taking at look at the UK’s selfbuild VAT reclaim figures. These are a key statistic, used to measure the size and the health of the selfbuild market where, uniquely in Europe, new homebuilding is zero-rated for VAT purposes. What I have managed to glean from the Revenue & Customs are new figures from March 2004 to August 2006; I already have figures for six years in the 1990s, so there is enough data here to make some comparisons.

In the first period, 1993-99, the average number of reclaims under the DIY reclaim scheme was 10,593 per annum. In the second period, April 04 – Aug 06, this was 10,810, a 4% increase, possibly not statistically significant.

However, the average size of each reclaim has grown dramatically, from £4,166 in the 1990s, up to £6,547 in the Noughties sample. A whopping 57% increase.

What the figures reveal

Firstly, they don’t really tell you the size of the selfbuild market. The only people that make DIY reclaims are non-professionals who aren’t registered for VAT and who buy materials on their own account. Therefore there will be lots of selfbuilds that never appear in these figures. We have to guess how many more, but you won’t be far out if you were to add 50% to the numbers — i.e. around 15,000 per annum.

They do tell you that the number of selfbuilds isn’t really growing. In fact earlier figures that I’ve seen also confirm this. The number of DIY reclaims has hovered between 10,000 a year and 12,000 a year ever since 1984 when VAT first became chargeable on building work.

What about the dramatic increase in the amount being spent? I can see two obvious reasons for this. Firstly, inflation in building materials, which has been growing steadily over the past few years. Secondly, selfbuilders specifying more upmarket materials, in line with housebuilding generally. Granite worktops, underfloor heating, hardwood floors, etc.

Finally, one fact is revealed in the latest figures which I haven’t seen before. Around 15% of claims are disallowed. That seems an extraordinarily high figure. I know the scheme is somewhat complex to understand, but nevertheless that’s quite a figure. I don’t know whether this 15% represents a lot of wholly rejected claims or whether it’s people wrongly claiming for unallowable parts of their build costs — probably a bit of both. The figures I have used for the amounts claimed excludes the rejected claims.

If you want to know more about the DIY VAT reclaim scheme, the relevant page is here. Please note, this scheme only operates in the UK.

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