VAT saving incentive triggers big increase in home renovations

Launched with some aplomb in last year's Budget, the home renovation incentive (HRI) scheme is now up and running, with the Revenue Commissioner's new website, available through revenue.ie, facilitating all applications for the tax credit.

So how is it going?
In the weeks since the website was launched on April 10th, some €20 million in projects has been logged onto the site – some stretching back to last October and some for work that has yet to be done – with about 500 contractors using the service.

The average value of each project is €16,000, according to the Revenue.

The most popular renovations so far are for window replacements, home extensions, kitchen renovations and general repairs.

Interest in the scheme has been brisk. The Revenue took a stand at Dublin's recent Ideal Homes Exhibition, for example, and found the level of interest "staggering", according to Pat Molan, principal officer in Revenue's planning division.

The credit applies to a wide range of works, including painting and decorating; rewiring; extensions; garages; attic conversion; supply and fitting of kitchens; bathrooms and built-in wardrobes; window fitting; septic tank repair or replacement; driveways; and plastering.

Remember, however, that there are some quirks about what is liable to VAT at 13.5 per cent – and therefore qualifies – and what has tax levied at 23 per cent.

Take the example of a new kitchen. If you go out to Ikea this weekend and spend €5,000 on a new kitchen, you won't benefit from the scheme. Why? Because VAT at 23 per cent is levied on such goods.

If, however, you hire a builder to fit the kitchen for you and they buy the kitchen in Ikea, then you will benefit from a tax credit of 13.5 per cent of the total cost of the work done.

Similarly, if you’re looking for a new bathroom, you must go through a plumber or contractor to get the 13.5 per cent tax credit. Buying a new sink on its own will not be eligible for the scheme.

In addition, carpets, furniture, white goods – such as fridges, washing machines etc – don’t qualify, while services that are charged at a VAT rate of 23 per cent, such as architect’s fees, are not covered by the scheme.

Credit for work already done
If you have already gotten work done – and paid for it – and you haven't already contacted that provider, you will need to do so as soon as possible.

The Revenue has indicated a deadline of May 8th by which any outstanding work needs to be logged into the system.

However, according to Molan, while it is “encouraging” contractors to comply with this deadline, there may be some flexibility on the date.

The next step then, is to contact the company or individual who did the work for you, and ask them to log the work into the Revenue’s system.

You will need to provide them with your local property tax (LPT) number for this to happen.

If they agree to do so, you can check if they do register the project by logging on to the website yourself, at revenue.ie.

To do so you will need your “tax reference number”, most likely your PPS number; the “unique property ID” for your house – the number indicated on your LPT form; and the “secure PIN”, which again came with your LPT form.

If you’ve misplaced these details, you can request to be resent the information through the Revenue’s LPT website.

Remember, if the work hasn’t been logged into the system, you won’t be entitled to tax relief.

You might find that contractors may be disinclined to log the data into the Revenue’s system, or will tell you that the work doesn’t qualify, or it doesn’t meet the threshold. As Molan says: “Any information that comes in goes into our data warehousing unit and we will make use of it.”

If you find that this is proving to be the case, then you can always suggest that you will bring the information to the Revenue yourself.

“As a last resort, the Revenue is here if a contractor has done the work and fails to put the works onto the system,” Molan says.

Credit for work yet to be commenced
If you're in the market for some home renovations and have yet to commit to a contractor, there are some important considerations you need to bear in mind if you want to avail of the credit.

In the early days of the scheme, the Revenue recommended that you ask a contractor who you were considering hiring to demonstrate their tax compliance by showing you a current “relevant contracts tax (RCT)” rate notification; and a current tax clearance certificate, which had to show a “valid until” date.

Now, however, Revenue recommends that the easiest way for you to be sure that a contractor is fully tax compliant is to get them to log the work when they visit you. The website can be accessed via a tablet or smartphone, which allows a contractor to log the work there and then – and prove to you that they are compliant.

Remember, contractors don’t pay VAT until they hit a turnover of €37,500 – but they can’t offer you the scheme until they are VAT registered.

As such, the Revenue suggests that someone can register for VAT even if they are below the threshold.

If the contractor says they will log the project when the work is done, or when they get paid, bear in mind that this indicates that they may be loathe to use the Revenue’s system.

If the contractor is happy to log their work with the Revenue, the process is similar to that outlined above, but the contractor will instead input an “estimated date” for when the work is due to be carried out.

According to the Revenue, this date is simply indicative of the timeframe, and does not have to be strictly adhered to.

Once you make a payment to the contractor, you must again log in to the system to ensure that the contractor has logged such payments. Again, if the payments haven’t been logged, you won’t be entitled to a tax credit.

Finally, from next January, you will be able to log in to the system to claim your tax credit – and get a discount on your tax bill.


Home Renovation Incentive What is it?
Introduced last October, the aim of the home renovation incentive (HRI) scheme is to encourage homeowners to stimulate the construction sector by renovating their homes – and to bring more of those working in the sector out of the shadow economy and into the tax net.

To qualify for the scheme, any upgrades must be carried out on a house that you own and live in, and you must also be up to date with your local property tax payments.

For contractors to qualify, they must be registered for VAT.

The scheme offers a tax credit of 13.5 per cent on the VAT you would otherwise pay your contractor, provided that you reach the minimum payment of €4,405 before VAT. The minimum tax credit on offer is €595 and the maximum €4,050. The first year for HRI tax credits will be 2015.

You get your tax credit over two years. So, for example, if you are entitled to a maximum credit of €4,050 in 2014, you will benefit from this by paying €2,025 less tax in 2015 and the same in 2016.

You don’t have to spend €4,405 all at once to qualify – if you get several smaller jobs done, such as a new door and a new patio in one year, and some repair work on your roof in the following year, you will still qualify, provided that the combined payments meet that threshold.

For example, if you pay a HRI-qualifying plasterer €3,000 (before VAT), and a painter €2,050 (before VAT), then your tax credit is €5,050 x 13.5 per cent = €681.75.