HMRC has clarified its views on the zero and reduced rating of conversion construction work carried out under Permitted Development Rights (PDRs).
Who is affected?
Builders and developers who convert non-residential buildings into dwellings for which individual statutory planning consent is not required because the development is covered by PDRs. Additionally, it applies to any person carrying out a similar conversion who will be making a claim for a refund of VAT under the DIY Housebuilders’ Scheme.
What are PDRs?
PDRs are a national grant of planning permission for particular types of development. They are intended to streamline the planning process by removing the need for a full planning application, therefore reducing the amount of information required.
What has changed?
To zero-rate the sale of all newly converted dwellings (from non-residential buildings) or to make a valid claim under the DIY Housebuilders’ Scheme, the converted building must meet the requirements of a building “designed as a dwelling”. One of these conditions is that the developer, builder or DIY Housebuilders’ Scheme claimant must be able to demonstrate that statutory planning consent has been granted for a 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 statutory planning consent.
HMRC have announced that following the introduction of PDRs, individual statutory planning consent will no longer be required for some developments making the meeting of this condition difficult.
HMRC Brief 9 (2016) sets out that when certain conditions are met, zero rating and/or reduced rating where applicable is additionally available when converting non-residential buildings to dwellings when work is carried out under a PDR. This is in contrast to work undertaken via planning consent.
Relevant parties will still be required to provide evidence that the work has been undertaken legally and that it qualifies as a permitted development.
The full guidance is here