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Monday, 16 April 2012

No VAT-Free for Old Buildings

Yet another nasty surprise has seeped out in the aftermath of Budget 2012 – the budget that likes to keep on taking – this time in the form of an historical VAT trap.

Alterations to listed buildings, many of which are churches, will now be subject to 20% VAT instead of being zero-rated.

It means VAT charged on alterations to listed buildings will be brought into line with VAT on other repairs and maintenance, which is already subject to the 20% standard rate.

This will catch alterations to churches such as creating new access for the disabled and installing lavatories and catering facilities – all currently VAT exempt.

The BBC reports, in one example of the effects of this measure, Canon Tony Dickinson of St Francis of Assisi church in High Wycombe saying planned repairs costing £250,000 to that church may have to be abandoned.

The Church of England as a whole thinks the change will cost it £20 million a year.

The Church is responsible for 45% of the country's Grade 1 listed buildings.

The rebate scheme that currently exists for repairs, allowing churches to claim much of the money back from a government fund, will be extended to cover alterations.

However, the Church is angered that only £5 million is being added to the pot for this purpose, which they say will be woefully inadequate.

The change will take effect in October.

A government e-petition against this proposal, started by the Church of England on 30 March, has so far attracted over 12,800 signatures. The e-petition will close on 30 June 2012. If it receives over 100,000 signatures it will be eligible for debate in Parliament.

The petition was set up following the launch of a consultation by HMRC, blandly called “VAT: Addressing borderline anomalies”, which closes on 4 May 2012.

In the consultation document the government says the VAT change is needed to disincentivise "change as opposed to repair" as repair works are subject to standard rate VAT. It says:

"Removing the zero rate removes the perverse incentive to change listed buildings rather than repair them and ensures that all alteration work receives the same tax treatment."

However, in a move allegedly designed to stop the rich benefitting from a tax break when installing swimming pools in their Grade II listed fortifications, the government has instead incurred the wrath of a sector comprised in large part of the Church of England, which they used to say was the Tory party at prayer.

Given that pre-budget confidentiality now appears to be as historic as the buildings affected by this tax hike (most of the budget was leaked in advance), why not consult on proposals such as this properly in advance, so they can be designed to achieve their desired effect, rather than pulling them, or rather allowing them to crawl slyly, out of a hat?

Any bets on another U-turn?

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