HM Revenue and Customs (HMRC) has recently issued a Business Brief to clarify the VAT position on the treatment of conversions of certain non-residential buildings into dwellings, following the introduction of additional permitted development rights (PDRs).What does this mean?
PDRs are a national grant of planning permission for particular types of development. They are used to streamline the planning process, by removing the need for a full planning application.
The government has introduced additional PDRs which permit the conversion (change of use) of specific categories of buildings into dwellings. These buildings include those that have been used, prior to change of use:
- as shops
- for provision of financial and professional services
- betting offices
- pay day loan shops
- amusement arcades or centres
- storage or distribution centres
- agricultural buildings.
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 building must meet the requirements of a building ‘designed as a dwelling’, ie must be self-contained, free of constraints in use and disposal, planning permission must have been granted in respect of that dwelling, and the construction that has been carried out must be in accordance with that permission. Following the introduction of PDRs, planning permission will no longer be required for some developments.
HMRC is clarifying its policy around the VAT treatment of works where statutory planning consent has been granted though a PDR. 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. Evidencing a PDR
Where the builder, developer or DIY House Builder Scheme claimant establishes that the conversion is covered by a PDR and planning permission is not required, they must be able to evidence it by at least 1 of the following:
a) Written notification from the Local Planning Authority (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 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.