Homeowners converting derelict buildings into dream homes could be paying over the odds for building work, warns a Kent tax expert.

Whether it’s a disused barn, wagon shed, oasthouse, stable or outhouse, all are popular options for people looking for buildings to convert. But what many buyers don’t know is that they needn’t pay the full 17.5 per cent VAT on all their conversion costs, according to Maidstone-based DSH chartered accountants and business advisers.

The firm believes buyers and builders may be unaware that they don’t have to pay the full rate of VAT on all work carried out converting a commercial building for residential use.

Alan Buckett, head of VAT services at DSH, said: “Too many people make the expensive mistake of assuming that the 17.5 per cent VAT rate applies to all the labour and building materials.

“Your local building contractor may be unaware of the complex VAT rules on different types of construction work and may play safe by charging you VAT at 17.5 per cent on everything.

“It’s worth checking with a VAT adviser before starting work, to see what aspects of the alteration work are subject to five per cent VAT or even zero-rated. Such a consultation can easily pay for itself.”

VAT relief is also available for people building new homes, or on projects involving demolition of a house and replacement with a new building.

Anyone seeking an old house to demolish and replace may be able to save VAT on the demolition costs, and on adding a conservatory or landscaping, as long as this is done before project completion. Rules allow anyone who has over-paid to claim money back for up to three years.