In most cases, the standard rate of VAT will be applied to the removal and replacement of cladding. However, the cost of replacing cladding can be zero rated if it is tied to the initial construction of the building and the cladding is shown to be defective.
The Government announced on 10 February 2021 that it would fully fund the cost of replacing unsafe cladding for all leaseholders in residential buildings 18 metres and over in England. It was also announced that for low rise buildings between 11 metres and 18 metres, with a lower risk to safety, there will be new protection from the costs of cladding removal. This would be made through a long-term, low interest, Government-backed financing arrangement to pay for cladding removal, where it is needed.
VAT plays an important part in funding public services such as the NHS and education. Extending the zero-rate could carry a significant cost to the Exchequer, and this must be viewed in the context of about £50 billion of requests for relief from VAT since the EU referendum. The Government keeps all taxes under review.