A dummy pass for avoiding VAT relief?

Heritage property experts at Smith & Garratt, the Borders-based firm of conservation accredited surveyors, are united with the great majority of those with interests in our built heritage in asking the Chancellor to re-think his proposal to apply standard-rate VAT to approved alterations to protected buildings.

The proposal, announced in details released following the budget speech in May, is to remove the VAT relief that is given in respect of approved alterations to protected buildings, with effect from 1st October unless one of the transitional arrangements applies.  Transitional arrangements are in place for projects where a written contract for the supply of materials or certain services was entered into prior to 21st March 2012, or where 10% of a substantial reconstruction was complete by 21st March 2012 – with the cut off at 21st March 2013 (which means any project for substantial reconstruction followed by a zero-rated sale or long lease must be sold or leased by 21st March 2013 for zero-rating to apply).

The effect of removing the zero rate will be to introduce a tax of 20% on approved alterations.  This matters because although a number of special buildings belong to wealthy individuals who are thought by HMRC to be able to afford the extra, many do not.  The majority of Listed building owners are ordinary folk with the usual range of financial issues, so they cut their coats to fit their cloth.  Following the change less work will be done, or it will be done less well, or it will be done by non-VAT-registered contractors.  This last point – taking work away from VAT-registered contractors – is an important one because only the larger craft-based firms take on apprentices, so this measure will result in fewer young craftsmen being properly trained to look after the fabric of our most special buildings.

HMRC’s pre-budget consultation paper criticised the zero-rating of alterations, saying that it incentivised changes to Listed buildings where it might have been more appropriate to support repairs.  This missed the entire point of zero-rating – that the best way to look after buildings is to have them in beneficial use, which often involves a degree of alteration, so by giving VAT relief on approved alterations the Government helps to safeguard our rich built heritage.  To cure this perceived anomaly, and to help our best buildings to have both new uses and aftercare, it would be better if both repairs and alterations were zero-rated.

So we at Smith & Garratt support the Heritage Alliance in lobbying finance ministers and others to drop this budget proposal.  We are, however, suspicious that the Government might make a dummy pass.

The Autumn Statement (11th November 2011) included the Department for Business Information and Skills’ implementation of the Penfold Review.  The aim of the Review is to simplify planning regimes in order to stimulate economic activity.  In relation to Listed buildings the Statement says:

“Developers must apply for Listed Building Consent if they wish to undertake works that would impact on the special historic or architectural interest of a listed building. Given there are 375, 000 listed buildings in England this is one of the most regularly applied for development consents. To reduce the number of unnecessary applications, the Government will enable the extent of a listed building’s special interest to be legally defined in its list entry – so only those parts of a building that contribute to its special interest are protected by regulation, removing the requirement to apply for a consent for works that impact other parts of the building.”

The Statement is to be codified when a legislative opportunity arises, so we can expect it to take effect in England soon; the position under devolved administrations is less clear.

And what will it do?  Principal Surveyor Hugh Garratt, who oversees heritage projects in the northern counties of England and throughout Scotland, says, “Call me a cynic if you like, but I think the Penfold proposals are, at least in part, revenue-driven.  If it becomes unnecessary to submit a Listed Building Application to seek approval unless your project will affect a building’s characteristic of special interest, many proposals will not require Listed Building Consent, and will therefore not fall within the definition of an approved alteration to a protected building … and so will not qualify for zero-rating whatever the Heritage Alliance achieves in respect of the recent budget.  The Autumn Statement contains some good ideas for simplifying planning procedures, but I’m afraid there’s no good news on the cost of works.”

For more information visit www.smithandgarratt.com