Taxes….few people like them and many complain about them, but that is because we take for granted all the wonderful free services they pay for. They are therefore very necessary, but it is important to make sure they are implemented in a fair and proportional way and when it comes to taxes on housing we think there is some room for improvement.
In a previous post we looked at the perversities of the stamp duty regime, this time round we are writing to put our full support behind the Cut The VAT campaign. This is a campaign to reduce the VAT on housing renovation and repair work from 20% to 5%. Other than simply making our services more affordable, there are a number of reasons why we think this makes complete sense.
Consumers in the home improvements environment can sometimes be driven solely by the price they pay, with less regard to the legitimacy of the outfit or the expected quality of the work. This means that tradesman who charge less on the basis they are prepared to accept cash and evade paying VAT (and a number of other taxes) have a price advantage over legitimate outfits. Not only is this illegal and creating a hole in tax receipts, but it is also fair to assume that those traders prepared to break the law may not be the most honest people and there is a good chance that the work they carry out will be inadequate and often unsafe.
Reducing the VAT rate would negate much of their competitive advantage creating a fairer and safer market. Consumers would be less likely to have to fork out for remedial works after a job is complete and the Treasury would actually see a higher number of qualifying works, albeit at a lower tax rate.
Obviously cutting a tax rate has some direct negative economical implications as the immediate tax receipts will be reduced. Nonetheless, it is important to look at the bigger picture.
Reducing the VAT would make home improvements and renovations more affordable and therefore kickstart more projects. This would have an immediate knock-on effect on employment as tradesmen and apprentices are picked up, the latest independent economic research from Experian shows that a reduction in VAT could create 42,000 extra full-time equivalent construction jobs from 2015 to 2020 and more still, an additional 53,000 jobs in the wider economy over the same five-year period.
More jobs and increased flow of money create additional benefits throughout the wider economy which give a boost, create further growth and, ultimately, lead to more tax receipts for HMRC.
The lower cost of works would encourage more people to make environmental improvements to their homes, this would result in lower emissions as well as reduced living costs.
We seem to be endlessly reading about the housing shortage in the UK. Regardless of whether you think this is a real issue or not, the government encourages house building by offering a 5% rate of VAT on new builds. Therefore, it seems counter-intuitive that they don’t do the same for renovations such as extensions and loft conversions which have exactly the same effect of increasing living space.
In our opinion the arguments in favour of a reduction really are compelling and are only countered by a thirsty Exchequer unwilling to make short-term losses for a long-term benefit. If you would like to find out more, please do get in touch or check out this page for further information.
The Propia Team