HMRC has clarified its policy to enable developers to retain the
existing VAT treatment of conversion works carried out to buildings
that no longer require full Statutory Planning Consent (“SPC”).
The sale of a newly converted residential dwelling (from a non-residential building) is a zero rated supply. The supply of services carried out in the course of undertaking such qualifying conversion also benefit from the 5% reduced rate of VAT. Both these reliefs have traditionally required the work to be carried out in accordance with SPC and to appropriate building standards. Changes in Local Planning Authority ("LPA") regulations now allow such works to be undertaken under PDR. Where this is the case, HMRC will still require evidence that the work has been carried out within the planning laws and will require at least one of the following to be obtained:
- Written notification from the LPA advising of the grant of prior approval; or,
- Written notification from the LPA advising that prior approval is not required; or,
- Evidence that the work is covered under a PDR and evidence of deemed consent (i.e. proof that you have written to the LPA and confirmation that you have not received a response within 56 days).
This is a welcome administrative easement but as with all property transactions the complexities of VAT need to be considered carefully to ensure the benefit of any reliefs are maximised.