VAT and Construction are never simple!
But on the 3rd May 2016 HMRC have tried to simplify Permitted Developments with Revenue & Customs Brief 9/2016
Under the PDR scheme, persons seeking to obtain planning permission to convert certain types of non-residential property (such as agricultural buildings or office accommodation) to residential dwelling(s) can make a PDR application, rather than a full planning application. This acts to hasten the application process for claimants and is being increasingly adopted by planning authorities in England.
Here is an extract from Revenue & Customs Brief 9/2016…
To zero-rate the sale of all newly converted dwellings (from non-residential buildings) or to make a valid claim under the DIY House Builder Scheme, the newly converted building must meet the requirements of a building ‘designed as a dwelling’. Further information can be found in Section 14 of Notice 708: buildings and construction (14 August 2014).
One of the conditions is that the developer, builder or DIY House Builder Scheme claimant must be able to demonstrate that statutory planning consent (SPC) has been granted in respect of that dwelling and that its construction has been carried out in accordance with that consent.
In addition, part of the conditions for some supplies of construction services to be eligible for the reduced rate of VAT of 5% for the conversion of a non-residential building into a dwelling requires individual SPC. Further information can be found in Section 7 of Notice 708: buildings and construction (14 August 2014).
Following the introduction of PDRs, individual SPCs will no longer be required for some developments making the meeting of this condition difficult.
HMRC is clarifying its policy concerning the VAT treatment of works where an individual planning application is not necessary because statutory planning consent has been granted though PDRs.
HMRC will continue to require evidence to be produced that the work is lawful in order for the zero or reduced rate of VAT to apply or for a claim to be eligible under the DIY House Builder Scheme. Where the builder, developer or DIY House Builder Scheme claimant establishes that the conversion is covered by a PDR and individual SPC is not required, they must be able to evidence it by at least 1 of the following:
a) Written notification from the LPA advising of the grant of prior approval. or
b) Written notification from the LPA advising that prior approval is not required. or
c) Evidence of deemed consent (ie evidence that you have written to the LPA and your confirmation that you have not received a response from them within 56 days) and evidence that the development is a permitted development. This will include all of the following (where the documents have been created), plans of the development, evidence of the prior use of the property (eg evidenced by its classification for business rates purposes etc.), confirmation of which part of the planning legislation is relied upon for the development and a lawful development certificate where one is already held.
Developments carried out under a PDR must still meet the appropriate building standards. Should any circumstances arise where building control is not required, evidence from the local authority confirming this should be provided.