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Should VAT on repairs be 5pc?

Every 10 years there is an English House Condition Survey which attempts to assess the overall state of the nation's homes. It covers all types of building as well as the full range of ownership from owner-occupiers to public tenants.

The latest report said that the condition of our homes was getting worse, not better, despite the current surge of interest in house makeover programmes on television. This decline in condition is said by some to be caused by, of all things, VAT.

VAT is one of those taxes that seem to sneak up on us. For most of our purchases, VAT doesn't apply, because the purchase price includes the VAT. If we buy a car or furniture, or even adult clothes, the VAT is built into the price.

When we buy a house, there is no VAT.

The problem comes when we want to alter the house, or just carry out repairs. Not only is VAT applicable, but it has to be shown separately to the cost of works. This way, it hits us full in the face.

You have pounds 2,000 of repairs and finish up paying an extra pounds 350 in tax. You probably would have been happy if the bill had only said pounds 2,350.00 and you didn't see the VAT, but when it is shown separately, it seems particularly harsh.

There is a benefit for some of the industry in that not all contractors need to charge VAT. If their annual turnover is less than pounds 56,000, then the repair bill is only pounds 2,000.

The problem is, the contractor still has to pay VAT on the materials they buy, and they can't recover that from you. So, if the pounds 2,000 of repairs includes pounds 800-worth of materials, the VAT on pounds 800 must be included in your costs. So the bill won't be just pounds 2,000 but pounds 2,000 plus the VAT on pounds 800 of materials, ie pounds 2,140.

If I'm giving you a headache with all of this maths, just imagine the poor jobbing builders.

They have the difficult decision of whether to register for VAT and so recover the tax they pay on the materials they need to do the work, or not to register, keep their annual turnover down to less than pounds 56,000, but still pay the penalty of VAT on the materials they buy.

The dark side is, there are some so-called builders who have an annual turnover in excess of the pounds 56,000, don't charge the VAT and insist on cash payments.

This way they can reduce their prices by up to 17.5pc and so give the customer a cheap deal. Because they keep no record of the payment, they can avoid their own income tax and national insurance payments.

The probability is these builders not only avoid the tax payments, but also cut corners on the job and charge as if they were paying tax so as to maximise their profits. The result is that the work is not good enough, but you pay almost full price.

The theory is that if VAT were cut to 5pc on alteration and repair work, there would be less incentive for the cowboy builders to get away with not charging VAT. Indeed, if they didn't charge VAT, they wouldn't be able to recover the VAT on the material supplies, so they would probably be out of pocket. So why is all this relevant today? This week a meeting was held between all the finance ministers in the European Union to review VAT policy across the member states.

At this meeting, there was a major lobby by the British professionals, building organisations and even heritage building owners to call for housing repair and refurbishment works to be cut down to 5pc. This isn't unusual. Indeed, it is fairly common in other parts of Europe. This group was lobbying for it to become consistent across Europe.

We don't know the answer to the deliberations at this time, but no doubt we will in the not-too-distant future. It certainly would have the benefit of reducing costs to all of us who have to look after our homes, but the other side of the coin is if VAT is reduced, the Treasury will be looking elsewhere to raise the money.

While the professionals, builders and conservation people are very keen to see this introduced, I do wonder whether we, the ordinary homeowners, think the same. Indeed, are we concerned about it at all? Let me know how you think by writing to me at The House Doctor, c/o The Journal homemaker, Groat Market, Newcastle NE1 1ED.

* Peter W Fall is the Senior Partner of Peter Fall Cowie, Chartered Building Surveyors. The company can be contacted on (0191) 232-7733. To request back copies of the House Doctor articles, visit www.pfc.uk.com
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Title Annotation:Features
Publication:The Journal (Newcastle, England)
Date:Nov 29, 2003
Words:823
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