Written answers

Tuesday, 16 December 2014

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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221. To ask the Minister for Finance if he will reconsider previous calls for the introduction of a 9% rate of VAT on residential housing to address the housing shortage and assist job retention and creation in the construction industry; and if he will make a statement on the matter. [48175/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, Irish VAT law must comply with EU VAT law which 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.

Having said that, it is possible for us to apply the 9% VAT rate to the construction of residential properties. However, this would involve having two separate VAT rates applying to construction services, which would be difficult to administer and could lead to underpayment of VAT. However, the Deputy will be aware that the Home Renovation Incentive, which came into operation on 25 October 2013 and will run until 31 December 2015, provides tax relief 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. 

The Home Renovation Incentive has been very successful to date with works on just under 12,100 homes notified to the Revenue online system as of 14 November 2014. This represents more than €243 million worth of works involving some 3,464 contractors. The Incentive is generating significant employment in the tax compliant construction sector and increasing sales in building supplies, hardware and related businesses. 

I announced in the Budget that I am extending the Home Renovation Incentive to rental properties whose owners are liable to income tax. The aim of this amendment is to increase and improve housing supply at a time when there is strong demand for housing and insufficient supply in certain areas.

As is currently the case, the work must cost a minimum of €5,000 inclusive of VAT which would attract a tax credit of €595. Relief will be granted in respect of qualifying expenditure up to €30,000 exclusive of VAT. The maximum credit is €4,050. Qualifying expenditure is expenditure which is subject to the 13.5% VAT rate.

The credit is payable over the two years following the year in which the work is carried out. The minimum threshold does not have to be reached by each contractor, where a homeowner or landlord 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 or landlord will qualify for relief.

The scheme is administered through Revenue's online systems. Contractors are required to inform Revenue in advance of details of works to be carried and are also required to notify Revenue in relation to any payments received in respect of the works. Homeowners are able to view the information provided to Revenue by the contractor through the Revenue electronic systems and 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.

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