Alterations to listed buildings are no longer
to be zero-rated, although listed places of
worship will continue to benefit from a
In the 2012 Budget on 21 March it was announced that the zero rate for approved alterations to protected buildings would be removed with effect from 1 October 2012.
This measure affects works to listed residential dwellings and certain other listed buildings used for qualifying charitable and residential purposes. Approved alterations are alterations that both require and have listed building consent but do not include works or alterations carried out for the purposes of repair and maintenance.
Her Majesty’s Revenue and Customs (HMRC) gave the following reasons for removing this measure:
1) it removes ‘the perverse incentive to change listed buildings rather than repair them’
2) it removes the need to consider the borderline between determining what works are zero rated alterations and what are standard rated repair and maintenance works – an area that leads to high levels of uncertainty and to potential errors.
HMRC also released a consultation document at the time of the Budget entitled VAT: Addressing Borderline Anomalies seeking responses to various questions and a summary of responses was released on 28 June 2012. This document confirmed the changes would be implemented despite considerable resistance from charities, heritage bodies, businesses and churches. In summary the new rules are as follows:
1) where listed building consent was applied for before 21 March 2012, or where a contract was entered into before that date, a construction project will continue to qualify for zero rated treatment on approved alterations up until 30 September 2015
2) construction projects where listed building consent was applied for after 21 March 2012 will qualify for zero rated treatment on approved alterations up until 1 October 2012
3) the zero rating for the sale of substantially reconstructed protected buildings will continue but in future will only apply where the protected building is reconstructed from a ‘shell’. Substantial reconstruction projects where more than 10 per cent (by reference to cost) was already completed prior to 21 March 2012 will qualify as zero rated sales under the existing rules (see www.hmrc.gov.uk/manuals/ vconstmanual for details)
4) legislation will be introduced to prevent forward payments being made to take advantage of the zero rating before its removal.
LISTED PLACES OF WORSHIP GRANT SCHEME
The Listed Places of Worship Grant Scheme currently provides a partial refund of VAT for eligible repair works to qualifying listed places of worship. The government has announced that from 1 October 2012, following abolition of the zero rate for alteration works, the scheme will be extended to allow for refunds of VAT on standard rated approved alteration works in addition to the eligible repair works. Additional funding will also be made available to the scheme.
WHAT TO DO NEXT
1) Check the date listed building consent was applied for – if it is before 21 March 2012 then zero rating can still apply to a project up to October 2015. Minor changes to a pre-21 March consent made after the cut-off date are also acceptable providing they are minor or relate to unforeseen issues not identified at the time of the original application.
2) Check the date the contract was signed for construction works – if it is before the 21 March 2012 then zero rating can still apply to a project. Minor changes to a pre-21 March consent made after the cut-off date are also acceptable providing they are minor or relate to unforeseen issues not identified at the time of the original application.
3) Developers planning to sell a reconstructed protected building should assess whether ten per cent of any reconstruction had been completed before 21 March 2012.
4) Generally ensure zero-rating on altered protected buildings is maximised on past and present building contracts. Retrospective adjustments can be made up to four years after the works are carried out. For example, if a contractor wrongly charged 20 per cent VAT on works they could be approached and asked for a repayment of the over-collected VAT amount.
It is also worth remembering that lower VAT rates still exist for the following types of construction project irrespective of whether the building is listed:
1) the construction of new build dwellings including a scenario where a pre-existing building is demolished apart from a single facade or a double facade (on a corner site) where its retention is a condition or requirement of statutory planning consent or similar condition
2) certain adaptations for disabled persons.
Reduced 5 per cent rate
1) conversions which result in a change in the number of dwellings, including a conversion from a non-residential building to a new dwelling or dwellings
2) renovation of a dwelling that has not been lived in for at least two years
3) installation of certain energy saving materials including solar panels, ground source or air source heat pumps, draught proofing windows and doors.
It is important to note that some items will always remain 20 per cent rated for VAT such as fitted furniture other than kitchen furniture, certain gas and electrical appliances and carpets. For each VAT relief there are also various conditions to meet in terms of the type of dwelling concerned and the planning status.
SPECIAL REFUND SCHEMES
It is also worth remembering that self builders and converters can reclaim VAT they have incurred on the creation of a new dwelling constructed or converted for private occupation. As before, there are numerous conditions to be considered in order for a claim to be successful.