VAT alert on building projects
PUBLISHED: 17:31 17 February 2014 | UPDATED: 17:31 17 February 2014
The new build and existing property divide
The government has stated that as part of its economic growth package, homeowners should be allowed to extend and renovate properties without planning permission.
The County Land & Business Association (CLA) has lobbied on VAT for several years. Like many others (Lord Rogers’ Urban Task Force Report argued this 15 years ago), we think it illogical and outdated to penalise with 20 per cent VAT the cost of caring for existing buildings, while simultaneously rewarding with zero VAT the construction of new buildings with their high-carbon impacts and short lives.
We are also particularly concerned about heritage, which is much less likely to be looked after when subjected to this 20 per cent penalty, especially after the government’s 2012 heritage VAT raid.
The CLA is continuing the campaign with the Cut the VAT coalition and others for five per cent VAT on work to existing domestic buildings. Following earlier lobbying in 2009, that is explicitly permitted by EU VAT regulations, although its net tax revenue cost of some £500m a year has so far proved unattractive to UK governments.
To create proper fiscal neutrality, of course, there should logically also be a five per cent rate on new build, which has the advantage for government of being net-tax-revenue-positive because the government gets more tax (the five per cent added to new build).
Developers, being unable to add the five per cent to the price of new houses, would knock that amount off the price they are prepared to pay for land, which would impact those selling land for housing development.
Despite strong arguments and wide support for more neutral VAT treatment, governments have shown limited enthusiasm and reform may not happen quickly.
VAT at 20 per cent on building work is a massive extra cost and a disincentive to do works. VAT can add £1,000 to a modest repair, £10,000 to a small extension, or £100,000 to a listed building restoration.
VAT as it applies to building work is complex. For example, if you build a new house you pay no VAT but if you completely refurbish one, 20 per cent VAT is charged.
In 2012 an important relief for the alterations of listed buildings was changed from zero to the full 20 per cent. We have also been lobbying on the detriment to the conservation of heritage buildings caused by the additional cost of VAT.
The CLA is a significant stakeholder in the heritage arena with members owning and managing between a third and a half of all heritage in the country.
The CLA’s focus, therefore, has been on helping and advising members upon methods of how to reduce their VAT bills.
This may not sound as exciting as campaigning, but it becomes more interesting when you realise that there are methods on reducing VAT on building work.
And this is not just, or even mainly, about saving money: if you are paying less VAT, you can afford to do correspondingly more work, perhaps further work on heritage buildings
The CLA published guidance in 2012, and a CLA Advisory Handbook in 2013, which list more than a dozen possible ways of saving VAT. These range from simply using smaller builders who are not VAT-registered to reliefs for building conversion and re-use.
All of these are, of course, wholly legitimate and perfectly legal: none involves offshore accounts, artificial tax avoidance, or paying cash to cowboy builders. Big savings can be made and you can fund extra building work with those savings.
We strongly recommend that Kent Life readers investigate VAT savings before embarking on any building project. n