Craig Mathieson: The incentive to protect our heritage is now zero

Published on 12/06/2012 00:00

George Osborne’s plan to remove the zero rate of VAT on approved alterations to listed buildings has been met with outrage from a construction sector struggling to cope with a challenging economic crisis.

The ill thought-out measure came as an unwelcome surprise to a sector which has united in its condemnation of the proposals. That’s because there are 400,000 listed buildings in the UK and large swathes of Scotland’s cities are listed and this measure will lead to numerous construction projects being scrapped.

To understand the government’s thinking behind such a drastic measure we need to reflect on the reasons why the policy of zero VAT rating was introduced in the first place. The thinking was to help facilitate such alterations and thereby effectively expand the life cycle of these buildings by enhancing their appeal to the public.

From the outset, however, it was an ill-conceived piece of legislation because, rather than applying zero-rate VAT to the repair and maintenance of these buildings, the government applied it instead to the physical alterations to the fabric of the buildings.

That resulted in the wide-scale adaptation of various listed buildings with significant architectural, cultural and historical value because physical alterations were zero-rated while repair and maintenance work was standard-rated. From the outset, then, the effect of the regulations has been contrary to that for which they were introduced.

The construction sector’s view is that, while VAT should be charged at the standard rate on alterations to listed buildings, when it comes to the repair and maintenance of such buildings it should be levied at a reduced rate, of 5 per cent. That way, the legislation should have the effect for which it was conceived.

The impact of the Chancellor’s proposal has been that many construction projects have been scrapped overnight. So the proposal was also ill-timed when the sector needs all the incentives and assistance from government it can get.

• Craig Mathieson heads the VAT department at French Duncan chartered accountants.