The Home Renovation Incentive Scheme 2014

Many people who are upgrading their insulation will get extra benefit from the Home Renovation Incentive Scheme – but not as much as they may expect

Tax Credits just got more complicated.

Imagine if in order to claim a tax refund for Medical Expenses you had to prove your Doctor, Dentist and Pharmacist were tax compliant; check that they were registering your treatments within a time frame you could not control or else lose out on the tax credit.  And then instead of getting your tax refund first thing in the new year, have to wait 2 years for it to dribble through your payslips.  Welcome to the crazy world of the Home Renovation Incentive Scheme Tax Credit.

We reckon the Home Renovation Incentive scheme is the most complicated tax credit available to PAYE Tax payers .

For the full guide to the Home Renovation Incentive Scheme (Also called the Home Improvement Tax Credit) and making sure you can get it in full – see Grainne’s excellent full guide here.

But here we are going to comment on why we think the government have got this tax credit wrong.

Home Renovation Incentive Scheme in Short

The short and sweet of the Home Renovation Incentive Scheme is you can get a tax refund of up to €4,050 on qualifying home improvements. To get the max refund you will have to spend €30,000 ex vat through a registered contractor.  The VAT on €30,000 of qualifying expenditure is 13.5%, which gives you the €4,050 which the government is willing to refund.

Handy Money – I’ll have that now?

Well, you don’t get the tax credit quite straight away.
If you are due, for example, a €2,000 tax credit for work done in 2014, the tax credit is given out over the following 2 tax years – in this example half in 2015 and half in 2016.

A messy point on this is that any qualifying expenditure from October 2013  (When it was introduced) to December 2013 is treated as  2014 expenditure.  so you will have to wait until 2015 & 2016 to get the value from the tax credits.

So I’ll have to wait until 2015 & 2016 to get a refund – but I’ll get the cash then?

Not quite.  The tax credit is not granted as a refund in those years – it is added to your tax credits in those years.  In effect, it will reduce the amount of tax you pay in each payslip in those years rather than getting it as a lump sum.

Of course, if you have the misfortune to not earn enough in those years to pay tax, you will not get any of the tax credits as cash – though they will carry forward until you do pay tax.

Fine so.  If I keep receipts, I’ll get the tax credits eventually?

No.  It’s very important to know that keeping the receipts is not enough.  Firstly, you need to make sure that your contractor is vat registered and tax compliant.  He can show tax compliance by giving you a copy of an RCT certificate or a Tax Clearance Certificate.  Neither of these show if he is vat registered though, so get him to print this on the quote for the job.

Okay, that and get vat receipts off the builder and i’m sorted?

Not quite.  He needs to register the job on a new HRI system under the property ID you were given when registering.  If the builder does not register the work on this system, you will not get the tax credit.

How do I make the builder put the info on the System?

Revenue suggests you hold back on a portion of the payment until you can confirm this on the live HRI system.  Of course, this would be difficult for work done in 2013, as the system only went live in April 2014.  No recourse other than withheld payment seems to be available.

Got that.  Can I start on the insulation job now?

Absolutely!   Oh, but did you say insulation?  If you are getting a Better Energy Home grant for that, for every €1 grant you receive, your qualifying expenditure for the Home Renovation Scheme is reduced by 3 times that.

So to use Revenue’s own example, if you spend €10,000 on insulation and receive a Better Energy Home grant of €2,700, the qualifying expenditure is €10,000 minus €8,100 (€2,700 times 3) which is €1,900.  VAT on this at 13.5% is €256.50 and this is the maximum Home Renovation Incentive tax credit you can receive

If you do this work in 2014 and are paid monthly, you will get this benefit through reduced tax on your monthly payslips of €10.69 per month throughout 2015 & 2016, where you are paying tax.

Surely that’s it?

Kinda.  The HRI online system isn’t live yet.  We have no idea yet how you will be able to get login in details for this system to check your contractor has uploaded his work for you.  We’re sure the development cost for such a system will be much less than the extra revenue that will be earned by forcing small builders out of the grey economy and onto the books by regular punters claiming the tax credit.

The purpose of this scheme is to make builders more tax compliant?

Well yes.  The expectation here is that your typical PAYE taxpayer who is not regularly dealing with Tax Clearance Certs or RCT certs will turn into business administration pros and keep full and proper online and paper records.  The hope is that this will drive more builders out of the grey economy and declaring the full amount of work done..

In Conclusion

In principle, the Home Renovation Scheme (HRI) tax credit is an excellent idea.  But we believe the implementation places to great an onus on the taxpayer.

PAYE Taxpayers are also trained into believing from all the other tax credits in operation, such as Medical Expenses, that you only need to retain receipts to be eligible to claim.

This can be a large tax credit, but you will have to manage it carefully to ensure you get the refund. We believe that a portion of those who were intending to claim it will end up not getting any tax credit for it as it is complex and you have no absolute control over what the builder does.  We believe that the biggest consequence of this tax credit for those people will be an undermining of trust in the tax system.

John O’Connor,

Red Oak Tax Refunds