Budgeting your project: a guide for domestic clients
If you’ve not embarked on a refurbishment, alterations & extensions, or new build before, knowing how and what to budget for should be your very first step. This exercise might even tell you right away whether your ideas are viable. You may already know what your total budget is, but not how this equates to what you pay your builder?
Every project is different, but here we set out some guiding principles you can apply early on. For clarity, we call the total money available to fund the project your ‘budget’. The amount you pay your Contractor is called the Total Construction Cost (ex VAT).
For Construction work to existing dwellings, with few exceptions, 20% VAT applies. This represents a significant proportion of the budget , so make sure to factor this in, or check whether any exemptions may apply. HMRC provide further guidance on this VAT Notice 708. Construction of new dwellings is currently 0% VAT rated.
For all your consultant and statutory fees, a good rule of thumb is to allow 15% of your Total Construction Sum (ex VAT). Most consultants will charge VAT on their services: this doesn’t enjoy the same VAT exemptions that may apply to construction work.
Consider how much contingency you want to allow in your budget. This covers unforeseen work that may arise during the course of construction on site. We normally recommend a 5% allowance over the Total Construction Cost. For more complex or challenging sites it may be prudent to increase this.
Finally, consider carefully about what your budget will or won’t include. For most domestic builds, some landscaping works are also required to complete the project.
So, to give you a couple of examples:
- You want to build a house on a greenfield site, you have already purchased the site and have a maximum budget (B) of £300,000. As Construction of a new house is currently VAT exempt, this doesn’t need to be factored in. To determine Total Construction Cost (TCC): B = £300,000 = TCC + (TCC*15%*1.2). In this case TCS = 300,000/1.18 =£254,237. Allowing a 5% contingency, divide this figure by 1.05 and we have a result of £242,130 as the Total Construction Cost.
- You are seeking to carry out an extension and some internal alterations to your house. You have a maximum budget (B) of £100,000. In your case 20% VAT applies. To determine the Total Construction Cost (TCC): B = £100,000 = (TCC*1.2) + (TCC*15%*1.2). In this case TCS = 100,000/1.38 = £72,464. Maybe in this case you know you have some issues with the building that you want to allow extra contingency for, say 10%, so we divide this figure by 1.10 and this reduces the Total Construction Cost to just under £66,000.
In reality both the consultant fees and contingency reduce on a sliding scale for larger budgets.
This guide is intended to help you make an initial assessment on the financial feasibility of your project, and inevitably it makes very broad assumptions that will not apply under all circumstances. We would recommend contacting us for an Initial Consultation to review both your budget and aspirations. During an Initial Consultation we also identify any significant issues that may affect your budget, the design, or programme.
Even if you are just starting out on your journey, but aren’t quite sure if you’re ready to start, contacting us for an Initial Consultation can provide some valuable early clarity.