VAT – planning for no planning permission

In 2013, permitted developments rights (PDR) were introduced which make it easier for people to extend their home, or create new homes in existing buildings such as offices, shops and warehouses. These rights mean that in many cases there will not be any planning permission as such.

However, whether seeking to obtain zero-rating, the reduced rate of VAT or VAT recovery under the DIY House Builder Scheme, one of the legal requirements under VAT legislation is that the works must be carried out in accordance with statutory planning consent (Note 10(1), Schedule 7A, VAT Act 1994 and Note (2)(d), Schedule 8, VAT Act 1994).

So what happens when the works to create a new dwelling or the sale of a new dwelling are performed under the new PDR regime where no planning consent is issued?

Thankfully and at last Revenue and Customs Brief 09/2016, published 3 May 2016, confirms that HMRC will accept that zero-rating, the reduced rate or VAT recovery under the DIY House Builder Scheme is permitted where no planning consent has been issued under the PDR regime. However, HMRC will require evidence to be produced that the work is lawful.

Where the builder, developer or DIY House Builder Scheme claimant establishes that the conversion is covered by a PDR, they must be able to evidence it by at least one 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 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.

Those who have created or sold new homes since 2013 should consider whether they hold appropriate evidence when PDRs were involved.

For further information and help on securing zero-rating or the reduced rate on works or the sale of property, please contact the TaxDesk on 0845 4900 509 and ask for Kevin Hall.