VAT reform would promote CO2 emissions reductions, more sustainable building & cost nothing – so why the delay?

Image: 1t CO2. Olafur Eliasson. Tate Gallery 2019.

A Project Compass response to the Climate and Biodiversity Emergency objectives defined in ARCHITECTS DECLARE.

(revised & updated from a Walter Menteth article 1st published in AJ: Sustainability in Practice. 28th February 2014) [i]


Government for too long has been missing an enormous opportunity to incentivise investment in sustainable construction: VAT reform. This means redressing the long-standing skew in favour of new build over refurbishment. Current VAT rates5% for new construction and 20% for refurbishment – distort the market in favour of new build. VAT is a powerful tool which must now be used here and abroad to help accelerate low-carbon sustainable construction.

The majority of C02 emissions in the built environment emanate from existing buildings. Yet because they exist, they have the lowest embodied energy. Rather than demolishing and rebuilding whenever the most sustainable solution is upgrading an existing building evidentially this should be done. Because there is not a level playing field, the current disparity between VAT rates results in a significant financial penalty for refurbishment.

A policy paper on UK architectural VAT was produced by the RIBA’s Procurement Reform Group in 2013 (LINK AVAILABLE HERE).[ii] This recommended reforming VAT with a new ‘payment by results’ quality-based approach which was evaluated to have minimal impact on HRMC tax revenues. This relies on an incentive structure where specifically sustainable construction is met or exceeded delivering VAT benefits. This creates an incentive for greener construction and better performance.

THE PROPOSAL IS TWOFOLD

1. First, the current 20 per cent VAT rate on repair and improvement work to existing buildings should be reduced to 5%, when the works deliver sustainability benefits that are certifiable above the minimum level of the current Building Regulations. This would encourage investment on improving performance across the existing stock.

As an essential first step reduction of the VAT rates on refurbishment to create a level playing field with new build, as has long been called for, is now urgently required.

But VAT should also be a tool to further accelerate CO2 reductions, improvements and innovation.

2. Second, there should be a standard 5% VAT rate on new-build residential dwellings. This would be applied except where such works would deliver sustainability benefits that are certifiably above the minimum level of the Building Regulations, in which case the current zero per cent VAT rate would be applied.

In both cases, the certifiable sustainability level above the regulatory minimum would in quantum and detail be set by a reasonable margin. The margins could be introduced with suitable transitional arrangements progressively adjusted and modelled for neutral cost to the exchequer. This approach to VAT reform would encourage UK homeowners to undertake sustainable improvements, and incentivise developers and industry to drive CO2 emissions reductions and push qualitative improvements in new building performance. Circular economic principles, local sourcing, recycling, upcycling, and waste reduction along with social values are all standards which could also be applied upon certification. This would further stimulate quality and professionalism, across the sector and particularly on smaller developments, reduce the grey economy that is encouraged by current VAT differentials.

HOW MIGHT VAT REFORM WORK IN PRACTICE?

The following is recommended as a development model.

Prior to the start of construction anticipated performance targets relative to Building Regulations would be set. Certification of building performance at completion is currently available through a Building Regulations completion certificate. But in this case certification extends to cover measurable performance standards upon completion and/or POE (post occupancy evaluation, as opposed to simply the designed standards).

A ‘stick’ or a ‘carrot’ approach is proposed for implementating VAT reform.

In the ‘stick’ approach.

  • A developer client would always have an incentive to achieve the lowest possible VAT rate.
  • Developer clients with design teams and contractors electing to construct projects targeted at achieving the lowest possible VAT level, where the targeted outputs were not achieved on completion, would become liable to tax.
  • For new build if a designed VAT rate of 0% was therefore targeted, and not achieved, a 5% VAT liability would arise. In refurbishment where a 5% VAT rate was targeted and not achieved, a 20% VAT liability would arise.

In the ‘carrot’ approach.

  • For developer clients with design teams and contractors working on projects targeting the higher levels of VAT, where the targeted performance outputs were exceeded sufficiently on completion, a tax could become recoverable.

What has been learnt from the Green Deal is the need to develop robust and simple solutions with the widest possible market penetration. Pragmatically and to reduce complexity therefore, it is probable that the easiest option would be to determine VAT rates at the commencement of construction for all at 5%, and then use the stick approach on refurbishment and the carrot approach for new build.

VAT reform is nothing new. In 1999, the Urban Task Force chaired by Richard Rogers included harmonisation of VAT rates as one of its recommendations. This proposition offers potential to rapidly incentivise change to more sustainable zero carbon construction, and at no cost to the exchequer, as part of the jigsaw needing implementation. It is also an international model transferable to other contexts.

If the government is to achieve significant UK carbon emissions reduction before 2050 construction VAT should be reformed now.

We cannot afford to wait any longer!


[i] Menteth. W., Sustainability in practice: VAT reform would promote sustainable building and cost nothing- so why the delay? 28 Feb 2014, In: Architects’ Journal . 239, 8, p. 62

[ii] Menteth W., Incentivising design quality and sustainability, VAT Policy paper. RIBA February 2013. [NB. A paper which also also covers the differential VAT rates applied to professional fees when charged directly by a client (20%) and when charged through a works contract (recoverable) – which incentivises D&B contracting]


Competition Culture in Europe: Voices

Competition Culture in Europe: Voices is now available from the RIBA bookshop

Competition Culture in Europe: Voices, 2018

This publication comprises a series of essays by distinguished architects, competition organisers, scholars and commentators in 22 chapters on architectural competitions.

The case studies, project data, discussions and interpretive glossary, that together include reflections on historic, contemporary and future competitions and their practices, opportunities and potential, in Europe and beyond, offer a valuable resource and unique insight into competition culture.

‘Competition Culture in Europe: Voices’ arises from an open European invitation issued by Project Compass in December 2017 for articles on competitions. From among ten objectives agreed at the International CCIE 2017 Conference held in Amsterdam, the subject areas identified in the call for this publication focused, although not exclusively upon two:

• Experiences collected from architects who have won Design Contests abroad, to better understand the conditions that apply in other countries, including the benefits and obstacles.

• Critical reflection by architects on substantive competition issues, including their practices and outputs.

In ‘Voices’ the case study essays from various locations, are provided along with project data to enhance knowledge and analysis, enable comparative understanding and provide a research resource.


The four-year Competition Culture in Europe (CCIE) programme is an informal collaboration between three not-for-profit organisations, Project Compass, Architectuur Lokaal and A10 new Architecture cooperative, under the fulcrum umbrella, which commenced in 2017. The aim is to join together with others across Europe who value the culture of architecture, to inform a brighter future for design competition culture across Europe. Specifically this will happen by further expanding cooperation on competitions through the exchange of knowledge and information; increasing access to pan-European competitions by making the national platforms on which competitions are announced more transparent; and by investigating and cooperating together structurally to agree and support advancement.

Project Compass Newsletter December 2017

Newsletter December 2017

The Project Compass Newsletter December 2017 highlights some of our activities  over the past 18 months, the publications that have been output, a procurement trends report and our anticipated future activities.

Information on our exciting programme and the range of new activities we plan may be of particular interest to all our supporters and site users.  We welcome your participation, collaboration and engagement in some, or any of these, and particularly any contributions towards the Venice Biennale 2018 works. Submission information on this will be made available shortly.

Other activities of interest include the development of more and better engagement in educational modules and our Guerrilla Competitions programme.

As an organisation promoting open access and engagement we always remain open to advancing projects that may be brought forward to us by others, so long as they lie within our Community Interest Company remit. If you have any projects, programmes or ideas which you individually wish to advance, please talk to us or email us at projectcompaccCIC@gmail.com