As you might expect, since the announcement in the budget of a scheme to incentivise home improvements in Dublin, I have been discussing it with plenty of interested homeowners. Anything that eases the burden of making changes to a house is welcome in my view, particularly at the moment when those changes are not generally being done for the sake of it, but because there is a real need to do something to a house that you didn’t imagine yourself still living in. So here is a quick guide.
How the scheme works:
The scheme is subject to more detail yet to be published, but at the moment it looks like this:
- A homeowner (who is up to date with their property tax and household charge) gets a builder or other tradesman (who is tax compliant) to do some house renovations in Dublin.
- The work is the kind where VAT gets charged at 13.5% (more on this later).
- The work is done between 25th October 2013 and 31st December 2015. (This was changed after the original announcements that it has immediate effect.)
- The homeowner pays the builder as normal, and pays the VAT as normal on the amount due to the builder.
- Revenue allows a tax credit of 13.5% on qualifying expenditure to the homeowner. This looks like it will be split over the two years following the payment, but that may be something due to be clarified when Revenue publish more detailed information about the scheme.
- The minimum amount that can qualify is €5,000 ex. VAT, so in that case the homeowner pays the builder €5675, and the tax credit later is €675.
- The maximum amount that can qualify is €30,000 ex. VAT, so in that case the homeowner pays the builder €34,050, and the tax credit later is €4,050
- Where the homeowner pays more than €30,000 (ex. VAT) for the work, it doesn’t disqualify them from the scheme, but the rebate doesn’t get any bigger than €4,050.
Presumably the scheme has three aims. First, to give the sector a lift generally. Second, to encourage more homeowners to insist on tax compliance from the tradesmen they employ, and discourage cash payment for building work, and third, to improve building standards on the assumption that a builder who is tax compliant is more likely to be better at building. I would have thought that the credit should be a good bit bigger than the VAT the client has paid in order to achieve the second and third aims – enough to make it undeniably more attractive for a client to go legit than to pay in cash and turn a blind eye. The way it looks now I’d view the scheme as a bonus for those people who would have done things properly anyway, rather than something that will make inroads into the black economy, or have an effect on building standards in the domestic sector.
What is qualifying expenditure?
There are maximum and minimum limits as described above, but the other stipulation in the announcement is that only expenditure that is charged for VAT at 13.5% will qualify for the scheme. Building work (including the cost of the materials fixed into the building) is charged at 13.5%, but there are some exceptions to be aware of.
- Often on a small job the client will go off and source and purchase things like the flooring, tiles, sanitary ware, light fittings, appliances etc. The VAT on these is charged at 23%, so that expenditure wouldn’t qualify.
- However, in the case of tiles, flooring, sanitary ware etc, where the builder both supplies and fits, then he will charge 13.5% and that brings it back into qualifying expenditure. Remember that having the builder supply the tiles or whatever doesn’t mean leaving it to him to pick them. He can be sent to a supplier that you have made your choice in.
- Fitted kitchens (barring the appliances) are generally charged to the client at 13.5%. The extract fan is the exception to the appliances, because it is usually a fitted item, and is usually included with the kitchen at 13.5%. There are grey areas here as well though – where you are buying the kitchen yourself and getting someone to fit it. If you head out to Ikea or somewhere else for supply only, then you will be paying 23% and that won’t qualify, but if your builder fits the Ikea kitchen then his charge for that will be at 13.5%, and will qualify.
- Loose furniture, carpets etc. would not qualify.
- Self-build work doesn’t appear to qualify, based on the VAT rate you would be paying for the materials, which would be 23%.
What will €5,000 to €30,000 get me anyway?
This of course is the interesting question. I am constantly surprised by the range of expectations that I see in clients for what this range of budget will buy. And before launching into this list of suggestions, I am aware that for any one item, you’ll always come across someone who says they got the same kind of thing for way cheaper, etc. etc. The aim here isn’t to scrape the bottom of the barrel, but to give a rough idea based on the projects and budgets that I am working with.
Like it will be when you actually get going on a project, the figures in the grants are excluding VAT. You might as well get used to thinking in this way, as all prices a builder quotes you will be worked out ex. VAT and then have the VAT on the end.
I’ll break it up into intervals:
If you are thinking of spending €5000 (€5675 including VAT) then you might be looking at things like:
– Re-fitting and re-tiling a bathroom, which would maybe come in around €3000.
– Fitting a properly made and not huge kitchen, say one with say 8 or 9 base units, decent doors, and probably without anything too fancy as the counter-top. This would probably eat up the full budget.
– Tackling storage by fitting custom-made units in alcoves, under stairs etc. I’d say you could look at getting a proper understairs storage unit, a nice custom designed wardrobe, and maybe a good alcove unit for a sitting room, made and fitted for around the €5000 ex. VAT.
– Fitting a new gas boiler, which would maybe set you back say €2000 ex. VAT.
Here you might be just looking at doing more of the things above (either by doing more of one thing or combining them.
– So a €10,000 budget would let you comprehensively tackle storage in a house maybe.
– Or make a key structural alteration or layout change, and then tidy up things around it.
– You could (properly) externally insulate a semi-detached house within this budget, but not that plus replacing all the windows.
– On a refurbishment project, say for a 3-bed house just purchased that needs to be upgraded but not to be extended, then the budget might cover re-wiring at ca. €8k, replumbing at ca. €10k, and a couple of other bits and pieces.
– Or you might look at external insulation and new windows.
– At this level of budget, for a someone who feels a house needs more or better space to work for them, I would be advising clients to consider layout changes and remodelling rather than extending.
– I would say that a budget of €30,000 would build and finish a straighforward ca. 20 sq.m. extension, as long as it didn’t have either a kitchen or a bathroom in it, and as long as you don’t expect any of the existing issues with the house to be sorted out as well.
– Another rough scope that might be covered by €30,000 would be taking a reasonably sized conservatory and re-building it as a proper building from the base walls up, assuming that the base was properly built in the first place of course.
– Finally if you were to look at a refurbishment job on a budget of €30,000, I’d see that covering maybe the refurbishing of a 2-bed apartment, reflooring, redecorating, new bathroom and ensuite, new kitchen etc.
These descriptions aren’t meant to be comprehensive – just to give some kind of indication of what these budgets might cover. Time will tell how the scheme is viewed, and whether it leads to any increase in small construction activity and VAT revenue. I think it is a welome bonus for those who intend doing things right, but I’m not sure if it is enough to “beat the cowboys” if that is what is hoped for.
Since writing this post there has been more information published on the Revenue website: http://www.revenue.ie/en/tax/it/reliefs/hri/index.html