Tuesday, 16 June 2020

Questions (75)

Charlie McConalogue

Question:

75. Deputy Charlie McConalogue asked the Minister for Finance if he will consider the points raised in correspondence (details supplied); and if he will make a statement on the matter. [10930/20]

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Written answers (Question to Finance)

I am advised by Revenue that the VAT rating of goods and services 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 standard rate, currently 23%. Member states are not permitted to apply a VAT rate lower than the standard rate to building materials. By way of special derogation from the general rule, however, Ireland is permitted to continue to apply a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but this reduced rate cannot be reduced below 12%.

Construction 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 benefit from the reduced rate of VAT, currently 13.5%. 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 reduced rate of 13.5% applies to the total construction 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% reduced rate on the total supply (including the materials and the labour elements of the job) to the homeowner. 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 homeowner.

Under my Department's Tax Expenditure Guidelines, the introduction of new tax incentive measures should only be considered in circumstances where there is a demonstrable market failure and where a tax based incentive is more efficient than a direct expenditure intervention. Tax relief in general can be a blunt instrument and in this case the grant scheme introduced by my colleague the Minister for Housing Planning and Local Government would seem to be the better approach in supporting affected homeowners to carry out the necessary remediation work.