Budget & VAT on Listed Buildings

[Woody3]

I'm not sure if I've missed the thread on this, but has anyone else picked up on the fact that all works done on Listed Buildings will now be subject to VAT @ 20%? :evil:

http://www.mortgagefinancegazette.com/the-budget/budget-listed-buildings-renovation-subject-to-vat/

 

[Nigel Watts]

The previous VAT rules in fact allowed zero rating only for approved alterations to listed buildings, not for their repair or maintenance - a rather perverse incentive given that the point of listing is primarily to preserve not to alter.

 

[Flyfisher]

The relevant documentation is here: http://www.hmrc.gov.uk/budget2012/vat-con-4801.pdf

It currently has the status of a consultation but it seems pretty clear it will be implemented given the detail already proposed and the very short time for consultation.

It's certainly true that this change will remove the anomaly of different VAT treatment for alterations and repairs, but its also the case that many alterations are advantageous to listed buildings in terms of making them more suitable for occupation - thereby improving their chances of being looked after - as well as improving their energy performance.

Government considers that our historic buildings are important enough to have all sorts of legal restrictions placed upon them, yet provides little or no assistance to those of us willing to take on the costly burden of caring for them. VAT exemption was at least a gesture of acknowledgement for the role that owners play in the preservation of our historic assets.

Overall, I'm not really surprised about this change though I am disappointed. And soon to be least £10k poorer.

 

[AMc]

So they keep 0% rating for new building and add a tax penalty for refurbishing and renovation of historic property?
I've always been baffled why new build should get a massive tax break - surely if the govt were serious about stimulating the building industry a tax break for repairs and renovations across all housing would have made sense.
Sorry I used the words "sense" and "tax" in the same sentence, silly me

 

[tobydog]

Excuse my ignorance if I get this wrong, however, wouldn't the imposition of VAT on alterations encourage the use of single tradesman who are not VAT registered and buying through trade rather than larger companies who can't avoid it? Thankfully our recent extension was zero rated due to our listing. The company who carried out the work was a fairly small but successful company who were VAT registered. If I was put in the same position again, 20% would make the project unaffordable with this same company. We would have to break the project into individually priced contracts and use non-registered tradesmen.

 

[MdB]

Materials cost £100 + vat = £120.

Vat registered company purchases goods at £120 then claims back £20. If making no profit, they then charge their customer £100 + vat = £120.

Non vat registered company purchases goods at £120. If making no profit, they then charge their customer £120 but don't charge vat.

In the above case it works out the same.

If however they are making a profit the sums are slightly different.

Vat registered company purchases goods at £120 then claims back £20. They add on £50 profit and then charge their customer £150 + vat = £180. The £10 vat on the profit goes to the government. Overall of the £180, £100 pays for the materials, £50 goes to the company and £30 goes to the vat man.

Non vat registered company purchases goods at £120. They add on £50 profit and then charge their customer £170. Overall, £100 pays for the materials, £50 goes to the company and £20 goes to the vat man.

So for materials, it makes no difference if you purchase from a vat registered or a non vat registered company. However, if you are paying the companies markup, it is better to go for the non-vat registered company. This is especially true for jobs with a large labour content (such as construction) as the materials will be a small percentage of the total bill.

However, if the end customer is vat registered, they opposite is true. It is better for them to purchase from a vat registered company as they can claim the vat back.

I'm sure that there is some sense in the above - but probably not much. Vat is such a fun subject... :roll:

 

[LadyArowana]

Good explanation, I think people also become confused between "trade discounts" that a supplier might offer to someone who is a regular bulk customer, and the charging/ reclamation or not of VAT by a tradesman.

 

[tobydog]

Thanks for the explanation. It's a jungle out there! You're right about the markup (profit) - that's often the bad hidden bit :evil:

Other than employing your own accountant, it's often very hard to get behind the numbers being quoted. Sometimes, if you're happy with the final price, then maybe leave it at that. We used a landscaper recently. He didn't charge VAT, made no profit on the materials (apparently) and charged a daily rate. The fact he took twice as long as I would have expected didn't really matter because the final price (and work) was good.

Thankfully nothing big planned on the house going forward other than the thatch which hopefully is 20 years away.

 

[MatthewC]

So they keep 0% rating for new building and add a tax penalty for refurbishing and renovation of historic property?
I've always been baffled why new build should get a massive tax break - surely if the govt were serious about stimulating the building industry a tax break for repairs and renovations across all housing would have made sense.
Sorry I used the words "sense" and "tax" in the same sentence, silly me

And "government"!

 

[AMc]

When the VAT threshold was £50K then it was very difficult for a full time professional builder to keep their turn over below that. Now it's a bit higher at £70K odd it may be a little more doable but you can't realistically do that with more than a couple of people on the payroll.

One of my contractors wasn't VAT registered which he achieved by getting his customers to pay for their materials directly. This sounds good in principal but in practice it meant you pay "retail" at the builders merchants (no trade discount) and also meant he had a fondness for almost running out of materials then making it your panic to get what he needed to site before he stopped work and left. Not ideal.

 

[MatthewC]

One of my contractors wasn't VAT registered which he achieved by getting his customers to pay for their materials directly. This sounds good in principal but in practice it meant you pay "retail" at the builders merchants (no trade discount) and also meant he had a fondness for almost running out of materials then making it your panic to get what he needed to site before he stopped work and left. Not ideal.

That sounds pretty poor - I paid several retailers directly, but at the trade price as the contractor ordered it (especially lead, where the retail mark up is huge). On the other hand, I also suffered the panic for me to get something NOW, even though the trademan must have known that he would need it soon; they seem to think that you are psychic. Fortunately there is a choice of builders merchants very close.

 

[biffvernon]

You're right about the markup (profit) - that's often the bad hidden bit

You call it markup or profit - I call that the value added. I don't hide it and I don't think it's evil. I take £100 worth of bits of an oak tree and turn it into a window which I sell for £1000 having added £900 of value to it. I'm not VAT registered so the Exchequer does not get any of the value that I added, only the small portion added by the sawmill that cut the tree up.

 

[LadyArowana]

You're right about the markup (profit) - that's often the bad hidden bit

Not wishing to be pedantic, but surely it's only "profit" once all other operating expenses have been deducted, not just the cost of the raw materials or parts. The tradesperson will have to fund his white van and allow for the occasional replacement of worn out tools as well as costs like liability insurance.

I think I have known Penners too long, I will get my coat :lol:

 

[d49xc]

Ah, but these are all 'overheads'
and indeed how you allocate proportions of 'overheads' to each job can radicially affect the paper profitability of each job.