A question of VAT

Duncan Baker-Brown – BBM Sustainable Design

For my third blog I wanted to focus for a moment on UK economics. The Architects’ Journal is currently calling for entries for its third annual Retrofit Awards, which it says ‘celebrates design, engineering and construction excellence that prolongs the active life of buildings and infrastructure’.

Since the credit crunch of 2008 Past RIBA President Sunand Prasad and others (myself included) have been urging architects to engage with the concept of working on retrofitting projects; reworking existing building in other words. Sunand quite correctly saw this as a possible growing area of work in an otherwise shrinking marketplace for architects. Rather predictably there was a chorus of negative replies from architects making statements around the idea that they hadn’t studied for seven years to tweak other people’s designs. However if we are honest a huge amount of any architects’ workload has come from this sector; who hasn’t worked on converting a Victorian terrace house?

As I have argued previously, retrofitting our existing cities so that they perform as low carbon circular metabolisms is an urgent priority if we are to have a hope of living in harmony with the natural world.

Of course the concept of retrofitting has a bit of a dull image: it certainly doesn’t sound sexy. In addition I would argue that for every rather dull over-cladding project there are plenty of underused or empty urban developments requiring an architectonic response to a new complex hybrid programme.

The Nook in Brighton

My practice like many others has just completed a number of domestic retrofit projects. One of them, The Nook in Brighton, is a free-standing large ‘listed’ Victorian villa divided into six small apartments. As part of the central government’s TSB Retrofit the Future initiative we over-clad the dwelling with insulation and render, added double and single glazing, MVHR and a couple of solar thermal panels. The ambition was to reduce the CO2 output of the house by 80%. The building has been occupied by six separate tenants for the last six months and is currently performing in excess of our targets. Not architecturally that challenging I agree, but extremely satisfying to know that we have turned this old gas guzzler into a lean low carbon 21st-century home for about £25,000 + VAT per tenant. As it is ‘listed’ VAT was ‘zero-rated’.

We have just finished another project where the client was prepared to pay the VAT associated with the extension and green retrofit of his 1950’s home. However more and more clients cannot afford to pay this tax and simply abandon their retrofit projects once they realise that what they thought was a decent budget is immediately cut by a fifth in order to pay HM Treasury their due. This is a very sad state of affairs. Since 2007 VAT has risen by 33%. This has resulted in many smaller retrofit projects becoming unviable, and more disturbingly larger projects morphing into ‘new build’ ones simply because if the budget gets over £500,000 or so the £10,000 or less required to demolish an average sized 4-bedroom house looks minuscule when compared to £100,000 or more of VAT.

Varndean Gardens green retrofit of a 1950's house in Brighton

Many individuals and larger organisations have been lobbying The Chancellor of the Exchequer George Osborne for the last couple of years asking him to remove, or at least reduce, VAT on green retrofit projects as a way of kick-starting the sadly depleted construction industry. Mr Osborne’s response in his last budget in March was to add VAT onto ‘listed’ projects as well. This caused a huge kerfuffle among the great and the good and the situation is obviously not resolved as I write this blog.

So sadly we still have the position where ‘new build’ projects are ‘zero-rated’ and retrofit projects are all taxed. However, if Mr. Osborne is concerned that people will take his tax a run, he should rest assured. I truly believe it would be very straightforward to prove to HM Treasury that your project was indeed as green as you contest. Simply by getting the applicant to employ a government-approved energy assessor to work out the CO2/m2/annum of the existing and proposed situations just as we did at The Nook. Then allow for monitoring the performance in-use for a year. You could have a sliding scale of VAT reductions based upon the percentage reduction in CO2 emissions. Therefore zero-rated VAT would be awarded to scheme achieving 80% or better CO2 reductions. It would also kick start the extremely valuable small-scale residential construction sector. Another example of a green industry that could help get us out of our current economic turmoil.

Anyway until George Osborne MP sees some sense I am officially in the business of demolishing perfectly good homes in order to replace them with low carbon versions of what was there before.

Duncan Baker-Brown is co-director of one of the UK’s leading award winning green architectural practices: BBM Sustainable Design. He is also an academic and campaigner focusing on issues of sustainable development, holding the position of Senior Lecturer at the School of Architecture and Design at the University of Brighton. Duncan has spent a long time designing buildings that utilise locally sourced, ‘replenishable’ material such hemp, straw, timber, grass etc. His practice designed the first public building using straw bales (Romney Warren Visitors Centre), as well as the first prefabricated house made entirely of these materials; The House That Kevin Built in 2008.

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