Cut VAT on extensions and repairs – our campaign to slash the cost of home improvements

Carrying out essential maintenance and repairs comes at a huge price to homeowners when you add VAT. The HomeOwners Alliance is campaigning to make home improvements more affordable for homeowners – by dramatically reducing VAT.

Angela Kerr Director, Editor

HomeOwners Alliance findings 

A recent national survey by the HomeOwners Alliance, Resi architects and YouGov found that a third (31%) – approximately 5.3 million – of UK homeowners pay cash to avoid VAT to afford home improvements. Meanwhile, VAT costs are deterring almost a quarter (23%) – roughly 4 million – of homeowners from improving their homes.

The survey also found that 8 in 10 (79%) home owners have faced obstacles with their home improvement plans – levels are highest in London at 87%. Finding a reliable builder, getting planning permission as well as VAT costs are the top deterrents.

Why we need to cut VAT on home improvements

There are several reasons why cutting VAT makes sense.

1. Adding VAT to home improvements means they are not affordable for many people. Our research shows VAT at 20% can make the difference between carrying out a home improvement and not. After spending thousands buying a home – a good chunk of which is paid in stamp duty tax to the Government – the Government then expect you to pay them an extra 20% when you improve it.
2. It is vital we make our housing stock a good standard and enable the UK’s transition to net zero carbon. Our recent report revealed that nearly two thirds (63%) – 32 million – of UK adults are worried about the quality of our housing stock and think our homes are “not fit for purpose”. Homes need to be fit to live in – secure, sound, energy-efficient and in a good state of repair.
3. Homeowners can often be encouraged to pay cash and be left exposed without a receipt. Although it isn’t a crime to pay a builder in cash, homeowners are acting illegally if they know this is to avoid VAT. There is a huge risk of not getting a receipt for the work: they have no proof that a builder, carpenter or electrician has done the work – and therefore no guarantee that if things go wrong they will come back to put things right.
4. Housebuilding companies do not pay any VAT when they build new homes and only a reduced rate of 5% for converting buildings into new dwellings. The government justifies this – and the HomeOwners Alliance supports it – on the grounds that we need to encourage housebuilding to overcome the housing shortage. We believe that building work done by homeowners that increases the living space of a home, for instance by converting the loft, should be treated the same as building a new home.
5. Although homeowners are eligible to pay reduced VAT for some improvements (eg energy efficiency or necessary adaptions for someone with mobility issues) the way the system is administered is overly complicated and confusing. This results in people not claiming their rightful reductions. For example, homeowners can pay 5% VAT on installing controls for heating systems and insulation, but not for installing the system itself (unless you are over 60 or on a low income). The scheme is so complicated that we hear of many builders not offering it to their customers because they fear they will be liable for the tax if they get it wrong.
6. Cutting VAT on home improvements to 5% could give at least a £15 billion boost to our economy, creating thousands of jobs, according to the Federation of Master Builders. This would boost the demand for renovations, which would benefit the construction industry.

Have you been put off building an extension or converting an attic because of VAT? If so we would like to hear from you.

Alex Depledge, CEO of Resi.co.uk, says: ‘Buying a home is the largest purchase most people will make and renovations are often their second largest lifetime spend. And if you’re spending £100,000, which is an extraordinary amount of money to save up – or take out on top of your mortgage – and then have VAT slapped on top of it, it can become impossible.’

Brian Berry, CEO of Federation of Master Builders, says: “Cutting VAT would also be an important step to help encourage more retrofits of our existing buildings to make them more energy efficient and deliver a cut in carbon emissions.”

The homeowners point of view

Alice Barlow*, 64, a landlady, lives with her husband near Warwick. The owner of several properties, she has been asked to pay cash-in-hand many times for renovation work and says the problem has worsened recently.

She says: ‘We own several properties, so I’m fairly used to getting quotes for building work. But I’m currently doing up a house in Devon and have been genuinely shocked by how widespread the black market for building work has become. Virtually every one of the tradesmen and craftsmen we have used on the project has hinted – or said outright – that they would like to be paid in cash. The builders we met didn’t specifically say it was to avoid VAT, but of course this would be the result if we had agreed, because they are a big enough firm to require charging VAT on projects.

‘But we wouldn’t dream of paying cash for large projects. It would be hard to avoid the impression of money laundering or something else fishy if we kept withdrawing fistfuls of £50 notes.

‘If I’m paying a local gardener to do a bit of mowing, I don’t mind paying them £20 in cash because they are almost certainly operating below the VAT threshold. That simply isn’t the case with many of these larger companies, who might ask you to pay in instalments of cash.’

*Not her real name

Cut the VAT Campaign – latest news 

On December 2nd 2019, the Cut the VAT campaign wrote to the party leaders to urge the next UK government to cut VAT on maintenance and improvements to people’s homes.  Quoting our research, cutting the VAT could unleash investment in housing as well as improving the standards of older homes which would benefit homeowners with warmer and more efficient homes.