Calls for renovation tax cut to boost construction trade

Lobby groups are calling for a cut to the tax rate on home renovations to boost trade for small construction firms.

The Federation of Small Businesses ( FSB) and the Federation of Master Builders are campaigning for the 15% VAT rate on renovation tax to be cut to 5%, after research showing how small building companies are struggling in the recession.

The survey by the FSB of its members in the construction sector found that over half (59%) said that their trade had declined over the past six months.

Some 37% felt that their financial prospects for the future were poor, with 49% identifying a lack of demand as the main cause of the downturn.

The 15% tax rate on home renovations currently applies to repairs, maintenance and improvements on existing homes, but not on new-builds.

The FSB’s John Walker said: "Confidence in the smaller building projects around the country has dropped to a low, and people who were thinking of adding an extension to their home, renovating their bathroom or building a garage, should be given the incentive to go ahead.

"Lowering the VAT rate on home renovation projects will encourage people to spend their money and give a vital kick-start to the important, but currently beleaguered, construction industry. It will also help the Government to meet its carbon emission targets by encouraging green home renovations."

An HM Treasury spokesperson told More Than Business News:"The Government only applies reduced VAT rates where it believes these would provide well-targeted and cost-effective support for its policy objectives, compared to other measures.

"The Government continues to keep the impact of VAT on different types of building work under review."