Terence Flanagan (Dublin North East, Independent)
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60. To ask the Minister for Finance his plans to reduce VAT on building materials as tradespeople are struggling to meet the cost; and if he will make a statement on the matter. [11444/14]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the VAT rating of goods is subject to the requirements of the EU VAT Directive with which Irish VAT law must comply.  Under the EU VAT Directive and Irish VAT legislation the supply of building materials is liable to VAT at the 23% standard rate. However, by way of special derogation from the general rule Ireland is permitted to continue to apply the 13.5% reduced rate to the supply of ready-to-pour concrete and certain concrete blocks, but this reduced rate cannot be reduced below 12%.

I would point out that EU VAT Directive and Irish VAT law provides that building services that consist of the "renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied" can also benefit from the 13.5% reduced rate of VAT. This means that where a building contractor carries out home improvements and the materials cost does not exceed two-thirds of the cost of the improvements then the 13.5% applies to the total building service.  A consequence of this is that a VAT registered building contractor will generally be entitled to recover VAT at the 23% standard rate on most building materials purchased while the contractor is only liable to charge VAT at the 13.5% rate on the total supply (including the materials and the labour elements of the job) to the home owner.  The difference in rates between the 23% input VAT and the 13.5% output VAT should normally be reflected in the VAT-inclusive cost to the home owner. In this context, if EU VAT law permitted a reduction in VAT on building materials this would actually favour contractors working in the shadow economy and outside the VAT net as it would reduce their cost base compared to legitimate contractors.

I introduced the Home Renovation Incentive (HRI) to encourage homeowners to carry out a wide range of building work on their home using legitimate, tax compliant contractors. The HRI provides for an income tax credit for homeowners who carry out repair, renovation or improvement work on their only or main residence. Qualifying work must cost a minimum of €5,000 inclusive of VAT. The maximum qualifying cost for the purpose of the tax credit is €30,000 excluding VAT. Qualifying expenditure is generally services consisting of the construction, demolition, extension, alteration or reconstruction of any building: such services are liable to VAT at the reduced rate of 13.5% unless the value of goods exceeds two-thirds of the total amount charged by the contractor.  Where this happens, the contractor will charge VAT at the standard rate of 23% on the total amount and this total amount is excluded from relief under the Incentive.   Expenditure which is subject to the 23% rate of VAT does not qualify for relief. The effect of the scheme is to give an income tax credit equivalent to the VAT charged on jobs up to €30,000 excluding VAT.