How vital is it to have planning permission? What happens if it is obtained retrospectively?
Occasionally, construction work on new residential dwellings will get underway before full planning permission is in place. Or there may be times when renovating an existing dwelling is found to be uneconomical and a new plan is formed, to demolish and build afresh.
Recently, there have been a spate of cases sent to the VAT Tribunal involving such situations. For example, a contractor starts work on what he is advised is an extension, which later becomes a new dwelling. The original extension work is standard-rated for VAT purposes, but construction of a new dwelling is zero-rated.
If at the outset the planning permission only supports an extension, the contractor has no choice but to add VAT at the standard rate when issuing an invoice. If the client obtains retrospective planning permission and is allowed to build a new dwelling, the work done up to the date of getting the planning granted cannot be changed – it will remain standard rated. Works undertaken after the date the planning was granted can be zero rated if the property is not completed. If it has been completed, then the client ends up with an extra 20% charged.
This is due to the fact VAT law states that the planning permission has to be in place at the time the work is undertaken/invoiced. Getting retrospective planning only gives legal rights in building the dwelling, it does not alter the VAT position.
If you have any questions please contact Liz Hill
or Rob Geary.