VAT and Churches

How does VAT apply to construction work?

The construction of new buildings is charged a zero rate of VAT, provided the supply in question is for a social purpose. In effect, this means that only the construction of new houses, dwellings and buildings with a charitable purpose is zero-rated. 

Generally, VAT is charged at the standard rate – currently 20% – on all repair, renovation and maintenance work whatever the status of the building concerned. This includes repair work carried out on churches.

HMRC publish detailed guidance on the way construction work is charged VAT.

The campaign for VAT relief on church repairs

There has been a long-running campaign for the introduction of a zero rate of VAT on repair work carried out on historic church buildings.

In the past ministers have ruled this out on a number of grounds:

• VAT is designed to be as broadly based as possible, in the interests of fairness, simplicity and legal certainty. Introducing a new reduced rate on repair work on churches could lead to the introduction of further reduced rates on other supplies, eroding the base of the tax at considerable cost to the public purse.
• Rather than making VAT more complex, a better way to support the maintenance of historic churches is to encourage charitable donations, and provide direct grants from bodies such as English Heritage.

Before the UK left the EU, an additional obstacle to cutting the rate of VAT on this specific supply is that it would have been contrary to EU-wide rules on setting VAT rates.

Alteration work to listed buildings, included historic churches, used to be charged VAT at the zero rate. In the 2012 Budget the Coalition government proposed a number of changes to the scope of VAT from 1 October 2012, including the withdrawal of zero-rating for alterations to listed buildings. In response to concerns about the impact of this change, the government announced that transitional arrangements for alteration work that was already in progress by the time of the Budget would be made more generous. These transitional arrangements were for three years only, so ended in September 2015.

Since this change Members have raised the case for a zero or reduced rate of VAT on repairs and alterations to listed buildings on a number of occasions, but with no indication of any change in the government’s position. In answer to a PQ on the case for zero-rating in January 2025 the Financial Secretary Lord Livermore noted that “evidence suggests that businesses only partially pass on any savings from lower VAT rates”, going on to make the point that “in some cases, reliefs do not represent good value for money, as there is no guarantee that savings will be passed on to consumers.”

What is the Listed Places of Worship Scheme?

In 2001 the Labour government introduced a new grant scheme to mitigate the VAT costs for the repair of historic church buildings, and other listed buildings used as places of worship: the Listed Places of Worship Grant Scheme. In 2012 the scope of the scheme was widened to mitigate the impact that the phased removal of the zero rate on alteration work to listed buildings would have on those listed buildings that were places of worship. The scheme receives around 7,000 claims a year. To date it has paid grants to churches, synagogues, mosques and temples worth over £350 million in total.

What plans does the government have for the Listed Places of Worship Scheme?

In October 2022 the Conservative government stated that it would provide funding for the scheme at least until 31 March 2025. Subsequently ministers in the Conservative government reiterated its commitment to the scheme, but gave no indication that they saw a case for introducing any new VAT relief.

Following the 2024 general election, the current government made no mention of the future of the scheme in its 2024 Autumn Budget. In answer to a PQ the month following the Budget, Chris Bryant, Minister of State at the Department for Culture, Media and Sport said “Departmental settlements have been set following the Budget announcement on October 30. Individual programmes will now be assessed during the departmental Business Planning process.” Subsequently the minister gave a written statement on 22 January 2005 confirming that the scheme would be extended “until 31 March 2026, the end of this Spending Review period.”