Yesterday’s Budget announced changes to remove the zero rate for alterations to protected buildings (mostly listed residential dwellings but also listed buildings used for charitable and other residential purposes). Whilst there was some speculation of a reduced rate being applied to all works to listed buildings at some point in the future to simplify the rules (rather than some at the zero rate and some at the standard rate), we had not expected works of approved alterations to become taxable at the standard rate.
Whilst 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 whilst the Listed Places of Worship refund scheme (operated by the Department for Culture, Media and Sport) is to be extended for approved alterations subject to VAT at the standard rate of VAT, there is no indication that the funding for the scheme is to be extended.
There are transitional arrangements in place where owners of listed buildings and developers have already entered into binding contracts for approved alteration works and associated construction materials prior to Budget Day. For approved alteration works where a signed contract is in place before Budget Day, works specified in that contract (allowing for minor amendment) continue to benefit from the zero rate if performed up to 20 March 2013 (1 year after Budget day). Any works performed after that date will be standard-rated.
HMRC are inviting comments on the draft legislation from businesses affected by these changes. The consultation period runs from 21 March 2012 – 4 May 2012.