Plan carefully to minimise VAT costs on listed buildings
THE removal of VAT zero rating for approved alterations to listed buildings was announced in the last Budget.
Many of those supportive of retaining the nation’s heritage have opposed this change but the opposition has been largely invalid as the public outcry only persuaded the Government to provide a very short term transition period.
Those who work in the construction industry and who undertake contracts to alter listed buildings will be aware that the VAT cost on such works from October 1 2012 will be 20 per cent. This is in line with VAT standard rated “repair and maintenance” charge applied at present. The change will particularly affect many charities, religious organisations and owners of private houses.
Rather than dwell on the demise of the zero rating, let’s concentrate on how to minimise the impact of these VAT changes. The practicality is that having a VAT cost at source will now be a very important consideration for those affected and will play an important part when preparing tender applications and budgets.
The various tips set out below are aimed at those who may incur these new VAT costs post October 1 2012 and they are set out in an order to maximise VAT reliefs in the most simple fashion. They range from questioning the timing of current projects through to the optimal use of the partial exemption method.
Consider if you are entitled to Transitional Period Relief. Zero rating can still apply until September 30, 2015 if the contracts were entered into or planning consent for such works was made before March 21, 2012. There is also provision where 10 per cent of a “substantial reconstruction” was completed before March 21. The extension of the zero rating for works to be completed under such contractual arrangements will be the easiest to facilitate and cause the least problems for all parties.
Apply to The Listed Places of Worship (LPW) grant scheme. The Government has boosted the scheme by allocating an additional £30m. Although the VAT has to be funded upfront, a good knowledge of the LPW should ensure a sizeable repayment of the VAT costs. Applications should be made as early as possible.
A sale of a Substantially Reconstructed Listed Building remains zero-rated. This applies to freehold sales or long leasehold conveyances (a lease with a 21 year-plus period). With careful planning proper tax structures may ensure 20 per cent VAT savings where the listed building is to be “substantially” reconstructed.
Simple VAT planning and administration. Normal VAT rules must not be forgotten in the planning of budgets. In particular, charities need to consider maximising all available reliefs, such as the disabled access VAT reliefs. VAT-registered charities should also make better use of improved partial exemption special methods. A final advice point is that when processing the purchase VAT, the finance staff should post the VAT in an optimal attribution matter.
Ensure that the VAT Reduced Rate for Construction Services is applied where appropriate.
Although zero-rating may be in the process of being removed for listed building alterations, we must not forget that there are other quite significant VAT relieving provisions. With that in mind there may be instances where the alterations may qualify for the reduced five per cent VAT rate.
Normal VAT rules must not be forgotten in the planning of budgets. It will become even more important to take VAT advice in terms of discussing the sticking effect of the increased VAT costs. In particular, charities need to consider maximising all reliefs such as the disabled access provisions; and making the most use of improved partial exemption scenarios where they are VAT registered.
Brian Birt is a VAT consultant at Garbutt Elliott, www.garbuttelliott.co.uk, tel: 01904 464100.