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VAT continues to fuel black economy

More than 55% of all home owners have requested cash-in-hand building work to avoid paying VAT according to new research by the Federation of Master Builders (FMB).

Brian Berry, chief executive of the FMB, said: “This research confirms what we already suspected – too many otherwise law-abiding individuals are asking their builder to carry out cash-in-hand construction work at 0% VAT in order to cut costs. What’s more, when the professional builder refuses, the home owner will all-too-often find a rogue trader that is willing to operate within the black economy. That’s when home owners inevitably become ensnared in nightmare situations with sub-standard refurbishment work that has been carried out with little or no regard for health and safety.”

Mr Berry continued: “Research from Experian shows that the black economy in construction is worth almost £10 billion a year but this is a conservative estimate and our latest research suggests the real figure is much higher. If government wants to limit the activity of rogue traders operating in the black economy it should reduce the rate of VAT to 5% on all housing renovation and repair work leaving almost no competitive advantage for those disreputable builders. Not only would this help eradicate the black economy, it would also boost the economy by more than £15 billion over five years to 2020 and create more than 95,000 jobs.”
Mr Berry concluded: “Charging the top rate of VAT on home refurbishment serves no purpose other than to put money in the pockets of rogue builders and perpetuate the culture of home owners requesting cash-in-hand work. It makes criminals, and often victims, out of families and individuals who are struggling with the cost of living and acts as a barrier to growth in the economy.”

Paula Higgins, chief executive of HomeOwners Alliance, a consumer group championing homeowners, said: 'Homeowners shouldn't ask to avoid VAT and builders should neither offer it nor accept it. Having a high rate of VAT on repair work creates a black market which is bad for homeowners, builders and other taxpayers. Lowering VAT will help cash strapped families living in cramped homes in a state of disrepair with leaking roofs.'

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