Government drops VAT changes to contracts

Last-ditch lobbying by housing associations has helped persuade the government to abandon proposed changes to VAT on design and build contracts, which the housing sector claims would have cost it tens of millions of pounds a year.

Following a European Court of Justice ruling, HMRC had proposed a change to the VAT rules for design and build, which would mean clients having to pay VAT on fees for architects and other tier two design professionals currently zero-rated under the procurement method.

However, HMRC has now opted to keep the current system in place following lobbying by charities and the National Housing Federation, which argued the tax change would have cost housing associations £108m over four years.

The RIBA in contrast - which sees design and build as a method that produces poor design and keeps architects away from clients - said the government had passed up the chance to improve procurement.

“This [proposed change] would have led directly to around 2,000 fewer homes,” said NHF finance policy officer John Butler.

“It would also have seen schemes cancelled because it tipped them over the edge in terms of viability. We were very concerned so we lobbied hard and made housing associations aware of this issue.”

Butler added that he was surprised by the RIBA’s stance given that much of the housing association work previously in doubt would have been carried out by architects.

But Richard Brindley, RIBA executive director, called HMRC’s latest move a “missed opportunity”. As well as lobbying for normalisation of VAT across new build and refurbishment, the RIBA argues that the current system unfairly incentivises design and build contracts.