29.06.12 The Heritage Alliance’s statement on the Government’s response to the HMRC consultation VAT: Addressing borderline anomalies
The Heritage Alliance is disappointed that the Government has refused – despite widespread opposition and strong challenges to the rigour of its evidence base – to reconsider its Budget proposal to remove zero rating of VAT on approved alterations to listed buildings, dubbed ‘the heritage tax’.
We recognise Government has made several not insignificant concessions (see below) but these are not enough, and consequently our concerns over this policy remain unaddressed.
Our concerns remain:
The government hasn’t listened
Of the six ’borderline anomalies’ addressed in the HMRC consultation, the measure on approved alterations to listed buildings attracted the largest number of responses – 818 responses out of a total of 1493 (55 per cent).
Yet Government has largely ignored these voices. The strong outpouring of concern from people across the country – charities, businesses, heritage groups, tax groups, construction firms, modest private homeowners and universities, to name just a few – has not translated into shifting the Government’s policy, unlike the ‘u-turns’ that resulted from better-resourced lobbies for other constituencies such as holiday caravans and hot take away food. Sadly this confirms our prediction that Government sees listed buildings stakeholders as a soft target – a disparate constituency of owners, charities and communities spread across the country.
The consultation procedure was flawed
Extending the consultation period by two weeks to eight weeks still fell short of the recommended period of 12 weeks.
HMRC acknowledges that most respondents opposed the measure in its entirety (1.10), yet this opposition has not translated into policy review. In this way respondents have adhered to the first criterion of the Government’s consultation Code of Practice, which states “formal consultation should take place at a stage when there is scope to influence the policy outcomes”. Despite the fact the majority of respondents opposed the policy, there has been no change to the substance.
Support to heritage is better targeted by public money – what public money?
HMRC comments that support for the heritage and public money for such objectives is better channelled through expenditure than through “poorly targeted” tax relief (2.6.24). HMRC does not indicate whether, apart from the £30m added to the listed places of worship scheme, the revenue derived from abolishing this tax relief (rising to £110 in 2015-16 and £125m in 2016-17) will be hypothecated back to supporting the heritage. If not, removing this VAT tax concession is a severe blow to those investing in our historic environment.
Fiscal policy is determined by departmental convenience not public interest
HMRC claims (1.3) that “the reliefs have been exploited by avoiders or non compliant businesses allowing them to secure an unfair example over other businesses” but the Alliance suggests that the real rationale lies in 2.6.26 – “the change makes the VAT rules simpler…for HMRC to administer”. Efficient spending of taxpayers’ money is of course important, but we also believe that the aim of public policy is to deliver benefits to the whole of the nation, not simply to streamline process for HMRC.
Big questions HMRC has failed to answer:
HMRC’s response does not defend the rigour of its evidence base. It still claims (2.6.24) that “in the majority of cases the work undertaken is for extensions and other alteration work to private dwellings”. But this evidence is based on a sample of just 105 cases of listed building consent, where there are nearly 30,000 cases each year. In addition, HMRC has not made public the methodology it used to determine what was and was not an alteration “for heritage purposes”. Strong concerns remain over the rigour of HMRC’s evidence and methodology for this policy.
HMRC’s response does not refer to the public benefit of listed buildings. In arguing that “it is hard to justify preferential treatment for altering a listed building over altering a non listed building” HMRC still fails to understand that heritage protection operates in the public interest, requiring all alterations to be approved in order to protect their integrity. Listed buildings are different to non-listed buildings – their protected status is a recognition of their immense public value: financial, social, cultural and aesthetic.
HMRC’s response does not admit this measure is at odds with other Government policies. This measure knocks a gaping hole through a range of other Government policies, such as the National Planning Policy Framework, Asset Transfer agenda and the wider concept of supporting civil enterprise to achieve the objectives of the Big Society.
The Government’s concessions are not enough:
The concessions announced are not insignificant, but they are not enough to prevent irreparable damage to our communities.
1. Increase to the Listed Places of Worship Grant scheme
Responding to pressure from the Church of England, the £30m pa increase to the LPOW Grant scheme up to 2015 will recompense listed places of worship for VAT on approved alterations as well as VAT or repair and alterations.
But listed religious buildings, important as they are, amount to just 6.3 per cent of our listed buildings. The HMRC response alleges it is logical to extend the LPOW grants scheme to include alterations but illogical to remove a tax relief (2.6.24). It is surely more illogical to allow some building types special treatment (6.5%) but not the majority (93.5%)?
2. More generous transitional arrangements
The Government concedes that at Report Stage of the Finance Bill an amendment will allow projects to benefit from zero-rating if listed building consent had been applied for before 21 March 2012. The Government will also extend the end of the transitional period to 30 September 2015 (up from March 2013), allowing qualifying projects to continue to benefit from zero rating for an additional two and a half years.
While this is helpful, the potential would be better realised if new alterations were allowed to be zero rated in the three year period. In other words, the window until 30 September 2015 should allow new work – i.e. Listed building applications made now and in the future – to be zero rated, as long as the work is completed by 30 September 2015. This would greatly assist the construction industry until a point when the general economic situation for heritage might be improving.
Next steps:
The Alliance has briefed MPs ahead of the Report Stage of the Finance Bill, at which the ‘heritage tax’ will be debated on the evening of Tuesday 3 July. We continue to call for a full review of the evidence and impacts, and have been calling on MPs to support Amendment NC10 that has been tabled calling for a full review of impacts.
Following this debate we will issue a further statement following-up on the outcomes. For the latest, follow us on Twitter.
Tags: heritage tax, listed buildings, listed buildings VAT, The Heritage Alliance, VAT alterations to listed buildings