Possible Changes to VAT on Alterations to Listed Buildings

The Chancellor announced in the budget that VAT on approved alterations to listed buildings will be charged at the standard rate of 20%.

This will bring alterations on listed buildings in line with repairs and maintenance, which are already charged at 20%. The measure will have effect on supplies made on or after 1 October 2012.

According the HM Revenue and Customs those likely to be affected are:

“Businesses carrying out approved alterations work to protected buildingslisted buildings or scheduled monuments which are dwellings or are used for a relevant residential or a relevant charitable purpose, and the owners and developers of these buildings.”

The measure will result in all building materials and construction services supplied in the course of an approved alteration to a protected building becoming subject to VAT at the standard rate. It will also result in a narrowing of the circumstances in which the first sale or long lease by a developer of a substantially reconstructed protected building can be zero-rated, so that only buildings reconstructed from a shell continue to benefit from the zero rate of tax.

The reasoning behind the government’s policy objective is as follows:

“Removing the zero rate removes a perverse incentive to change listed buildings rather than repair them and ensures that all alteration works receive the same tax treatment. The change makes the VAT rules simpler for businesses to understand and for HM Revenue & Customs (HMRC) to administer and reduces the scope for error and non-compliance.

The full document can be accessed at http://www.hmrc.gov.uk/budget2012/tiin-4806.pdf.

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