20 Percent VAT on Home Improvements

It is undoubtedly necessary for the Coalition Government to substantially reduce the enormous national debt that they inherited from the last Labour Government. However is it wise to increase the VAT to 20% on home improvements, refurbishment work and property extensions?

Currently there are many small and even medium size builders and associated contractors willing to take cash and forget the VAT. This is taking place all over the country and involves competent and otherwise respectable builders and contractors and not just the "cowboys". The VAT saving is being actively sought by home owners anxious to keep their costs down. Having been provided with quotations by three or four firms many homeowners then ask "how much is it for cash?" The builder given the job is usually the one who takes the cash and reduces the price by the VAT element.

It seems obvious that this practice will increase when the VAT rate is raised from 17.5% to 20% with HM Revenue and Customs and the Exchequer being the losers - and that means the taxpayers! A number of suppliers of building materials have noticed an increase in the number of people paying cash for quite large quantities of goods. For many years successive governments have been lobbied to reduce the VAT rate on home improvements, extensions and refurbishment to 5%. Most homeowners would be willing to pay 5% VAT and legitimate builders charging VAT and paying corporation and income tax would benefit. The homeowner would also benefit by being able to enter into a valid contract and being able to obtain redress through the courts for any breaches of the terms of the contract or any unsatisfactory work. There are a number of published estimates of the amount of tax lost by this cash payment arrangement - often referred to as the "black economy" - ranging from £1 billion to £2 billion.

The higher taxation becomes the more people are prepared to evade it. Your comments are invited.

1 comment(s) for “20 Percent VAT on Home Improvements”

  1. David Lewis Says:

    I’ve no doubt that reducing VAT on home improvements to 5% would bring more money into the Treasury. I’ve seen graphs showing how a reduction in capital gains tax in the USA has increased the tax yield, and I’m sure it’s true across the board: especially on big items like home improvements.

    The problem is that it’s almost impossible to convince ministers of this basic fact, and totally impossible to convince Treasury officials. So we will go on putting taxes up, oblivious to the benefits of bringing them down.

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