The removal of the zero rate for alterations to listed buildings was one of the few aspects of the Budget that hadn’t been trailed in the press. While repairs on listed buildings have always been subject to full rate VAT, if the work planned fitted the definition of an alteration, providing it had been granted listed building consent and was neither deemed a repair or maintenance, previously it qualified for zero-rate VAT.

The move to make alterations become taxable at the standard rate was unexpected, explains Karen Mulcahy of The VAT Consultancy* (01962 735350; www.thevatconsultancy.com). ‘Although the zero rate of VAT is being retained for substantial reconstructions of residential listed properties, the definition of ‘substantial reconstruction’ is being revised**. The effect is to limit the zero rate to works which amount to demolition and reconstruction from a shell.

‘Listed places of worship will also be affected, and although the Listed Places of Worship refund scheme is to be extended for approved alterations subject to VAT at the standard rate, there is no indication that the funding for the scheme is to be extended.’

Philip Eddell of Savills Country House Consultancy (01635 277 709) says this is a ‘big deal for owners of listed buildings, as most will be privately owned, reconstruction costs and materials tend to be more expensive, therefore restoration and improvement has always been proportionately more expensive.’

He continues: ‘At worst it will make listed buildings requiring extensive repair and improvement less attractive for private owners, which will ultimately affect capital values.’
Under the transitional arrangements, owners who have already entered into binding contracts for alteration works prior to last Wednesday, will continue to benefit from the zero rate if works are carried out up to March 20, 2013. These are draft proposals. The Government has entered into a period of consultation which runs until May 4, 2012.

* The Vat Consultancy are ProjectBook’s appointed Vat advisors for Vat related enquiries for owners of period and listed buildings Projectbook provides a wide range of information for the conservation, restoration, care and repair of period and listed buildings.

** An alteration is defined as something undertaken to the fabric of the building which is more than ‘trifling or insignificant’. According to HMRC’s own internal guidance, the fabric of a building “comprises the elements that characterise the structure as a building, such as walls, roofs, internal surfaces, floors, stairs and landings and all doors and windows. The fabric of the building also includes plumbing and central heating systems, and mains wiring and lighting systems.”