Storm Desmond has blasted the UK, bringing flooding and devastation across the UK. Over the next few days, the government is expected to announce the support it will be giving to the thousands of home owners affected by the floods. So could they look to use the VAT system to ease the misery of those affected by the flood waters?
In the aftermath of Storm Desmond, much of the current focus is rightly on relief efforts for individuals and businesses. Without meaning to be insensitive, much work and money will need to be spent on repairs, renovations, replacement goods and future-proofing flood defences.
The government will be announcing the support it will be giving to flood areas beyond the local communities in the following few days. In doing so, hopefully, the government will recognise that by employing local businesses and tradesmen in a ‘clean-up’ campaign and flood prevention works, the local communities will at least get the full benefit of any financial aid being promised.
Unfortunately, as we stated following the floods in early 2014, under the current VAT rules, claims for repair and clean-up work include VAT at the standard rate of 20 per cent. However, then, as now, if the government is willing, we can legitimately under EU rules, apply a reduced rate of VAT of 5 per cent to all renovation, repairing and alteration of private dwellings, to agricultural production, and to any temporary accommodation required in hotels, or to restaurant and catering services.
There are a number of benefits in applying a reduced VAT rate to all repairing and maintenance of dwellings across the UK. For those affected by the recent storms and flooding, VAT at a reduced rate would mean insurers paying out less in claims (hopefully resulting in subsequent premiums being lower), uninsured householders finding the cost of repairs less inhibitive, while local tradesmen won’t face such a huge VAT liability while waiting for insurers and/or householders to pay them.
We would also suggest that, as an added bonus, the government could subsidise future flood defence prevention works from the additional 3.5 per cent added to insurance premium tax on home and contents insurance from 1 November 2015, and the VAT ‘windfall’ it will receive as a result of the repairs and maintenance which will be required from no doubt further storm damage and flooding as winter progresses.