Get back VAT on home extensions with the HRI scheme
THE Home Renovation Initiative (HRI) was one of the more creative announcements in the Budget last October as Finance Minister Michael Noonan sought to solve the twin problems of the huge numbers of construction workers, electricians, plumbers and builders finding it tough to get work, or operating in the black market, and supporting those homeowners who, through negative equity or lack of mortgage availability, are finding it impossible to upgrade to larger houses.
The HRI essentially returns the VAT element, currently 13.5 per cent of any "repair, renovation or improvement" works to customers who engage tax compliant, VAT-registered contractors to undertake them.
With over 4,300 separate contracts already agreed on 3,830 properties, and a spend of over €80m so far, the scheme is undoubtedly a success since its introduction last October and it has the added merit of not being overly complicated in terms of paperwork with the onus on both the contractor and homeowner to do their bit to ensure compliance.
The VAT is repaid over a two-year period commencing the year after the work is carried out; a little bit mean, granted, but Revenue clearly believes in delayed gratification.
The work itself must be completed before December 31, 2015 unless there are planning permissions being awaited, in which case the deadline is extended to March 31, 2016. For works in the current year, the credit will be spread between 2015 and 2016 as long as they were registered by May 8, 2014. For PAYE workers, this is on a weekly/monthly basis via a tax credit on their payslip. For the self-employed their accountant will make the calculations for annual returns in October.
The work does not have to be done in one go, but can be phased as required. However, the limits that apply are aggregated, based on the entire spend, rather than per year.
The minimum total outlay from the homeowner must be at least €4,405 before VAT, which results in a tax credit of €595, while the maximum allowable for the relief is €30,000 (refund here is €4,050). Naturally you can spend any amount you like, but that's the highest figure which will qualify for the credit.
You may also engage whatever number of contractors you wish, eg builder, decorator, kitchen fitter etc, but they must be VAT registered and tax compliant. It is also a requirement that your property tax is up to date, including any outstanding household charge payments.
So, for a spend of say, €6,300 for new windows, some electrics and a bit of painting, the credit is calculated as 6,300 x 13.5 per cent = €850. Over 24 months, this equates to €35.44 per month.
You should get several quotes for work from different contractors and in the case of builders, checking the Construction Industry Federation website to see they are registered is a good idea (www.cif.ie). Electricians have their own guild (www.reci.ie).
Next, ensure that the work (and your house) are qualifying. Allowable items under the scheme include painting and decorating, tiling, plumbing, wiring; extensions, attic and garage conversions, new bathrooms and/or kitchens, driveways (building or extension), landscaping and septic tank works. The property must be your principal private residence; holiday homes, rental properties or uninhabitable dwellings requiring complete refit are not included. Nor are new builds.
In terms of works, the type of things disallowed include furniture, furnishings/decorative items, white goods (eg fridges, dishwashers), any service fees paid at higher VAT rates, eg architect or solicitors' fees which are normally taxed at 23 per cent, or items purchased by the owner (tiles, paint, etc).
Savvy homeowners may be already thinking of applying for grant-assisted works under the Sustainable Energy Authority of Ireland (SEAI) while getting the builders in, but Revenue are one step ahead of you.
If you apply for a Better Energy Homes grant (which is available to almost everyone, not means-tested and unfortunately, not terribly well promoted), you need to deduct three times the grant amount from the works' cost.
So for a total bill of €10,000 for insulation works, for which say, a grant of €2,000 is given, you need to deduct €6,000 (€2,000 x 3) before calculating the tax rebate due under HRI, in this example, €4,000. While this figure is below the minimum limit indicated in the HRI rules, it still qualifies as the original overall spend was higher. So, €4,000 x 13.5 per cent = €540, which you receive in addition to the grant.
For a full list of grants available, see www.seai.ie.
When deciding to engage a contractor, get a written quote of the cost and expected timeline. A proper agreement entered into at the beginning obviates confusion and ambiguity. If you have a number of contractors, ensure they liaise to make efficient use of their time and that the works run smoothly.
The process in applying for the rebate under the scheme is relatively straightforward. The client must provide the builder with their local property tax (LPT) number (not PPSN). The application is then completed online by the contractor who will confirm the agreed contract figure, dates of payment, start and completion dates. After the works are complete, the owner confirms this online and gives his/her tax details. Revenue then arranges the rebate commencing next year.
The scheme is only beneficial to those paying income tax as it cannot be applied against the Universal Social Charge (USC). This may mitigate against pensioners availing of it, as they may be tax-exempt if they are below income thresholds.
Sunday Indo Business