Brendan Griffin (Kerry South, Fine Gael)
Link to this: Individually | In context | Oireachtas source

181. To ask the Minister for Finance the estimated cost of reducing VAT on construction work to 9%; if he will consider this on a pilot basis as an economic stimulus; and if he will make a statement on the matter. [7770/14]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

EU VAT law, with which Irish VAT law must comply, does not in general allow the application of a reduced VAT rate on construction services. However, Ireland applies the 13.5% reduced rate of VAT to construction services under a derogation from the EU VAT Directive, because Ireland applied a reduced rate to such services on 1 January 1991. However, this derogation is only permissible where the VAT rate applying is 12% or greater. In this case, it is not legally possible to introduce a 9% rate of VAT on all construction services.

While it is possible for us to apply the 9% VAT rate to the construction of residential properties, this would involve having two separate VAT rates applying to construction services. This would be difficult to administer and could lead to underpayment of VAT. However, the home renovation incentive provides a tax incentive for property owners in the area of income tax. This incentive, which came into operation on 25 October 2013 and will run until 31 December 2015, provides tax relief for homeowners by way of a tax credit at 13.5% of qualifying expenditure incurred on repair, renovation or improvement work carried out on a principal private residence.

Qualifying expenditure is expenditure subject to the 13.5% VAT rate. The work must cost a minimum of €5,000 (inclusive of VAT) which would attract a credit of €595. Where the cost of the work exceeds €30,000 (exclusive of VAT) a maximum credit of €4,050 will apply. The credit is payable over the two years following the year in which the work is carried out. Works carried out between 25 October 2013 and 31 December 2013 will be considered to have taken place in 2014 for the purposes of awarding the tax credit.

It is worth noting that the minimum threshold does not have to be reached by each contractor where a homeowner engages a number of contractors to carry out different works. So long as the aggregate payments reach the minimum threshold of €5,000 inclusive of VAT, the homeowner will qualify for relief.

Homeowners must be local property tax compliant on all properties they own in order to qualify under the Incentive, while building contractors must be tax compliant in order to carry out works. The scheme will be administered through Revenue s online systems. Contractors will be required to inform Revenue in advance of details of works to be carried and will also be required to notify Revenue in relation to any payments received in respect of the works. Homeowners will be able to view the information provided to Revenue by the contractor through the Revenue electronic systems and will also claim the relief through those systems.

With regard to the cost of reducing the VAT rate on construction services, given the options for reducing the VAT rate, estimating a costing would not be appropriate as the Revenue Commissioners statistics are not compiled in such a way as to provide a suitable basis to accurately estimate the impact on the Exchequer from the change mentioned in the question.