When converting non-residential buildings into dwellings, getting the right advice on how VAT should be applied is crucial. Significant savings are potentially available through ensuring that the correct VAT rate is charged on the work, and establishing if the VAT can be claimed via a VAT return or through the DIY Housebuilders' Scheme, so it is important to establish what VAT savings are available.

Permitted development rights (PDRs) are another mechanism that can affect VAT, so it is vital for planners to make themselves aware of the rules, to ensure you can claim back any VAT you are owed.

How does VAT apply to PDRs?

PDRs are a national grant of planning permission, designed to allow certain building works or changes of use to be carried out without having to apply for planning permission.

They are designed to reduce the information requirements on planning applications and streamline the building conversion process. They are applicable to the conversion of specific buildings, including shops, offices and agricultural buildings, though restrictions apply in locations such as conservation areas, national parks and World Heritage sites. To find out more about how PDRs work, consult the official government guidance.

Under previous legislation, the granting of statutory planning consent (SPC) was required for builders or developers to zero-rate the onward sale of dwellings converted from non-residential buildings. This is also true for those seeking to make a claim under the DIY Housebuilders’ Scheme, and for some reduced-rated supplies of construction services.

However, HMRC simplified this regulation in May 2016, meaning that SPC no longer needs to be granted, with the relevant work being undertaken in accordance with this consent. Instead, developments of this nature can be evidenced and carried out under a PDR, while still allowing for zero rating for new builds or reduced VAT rate for conversions to apply to building services. VAT recovery via a VAT return or a DIY Housebuilders’ Scheme claim may also be possible, depending on the intended use of the property.

Evidence is still required where the change of use of a building is covered by a PDR; this evidence should take the form of written notification from a local planning authority that approval has either been granted, or is not required.

Find out more

These rules apply to any builder or developer converting a non-residential property into a dwelling, as well as those looking to claim back VAT through the DIY Housebuilders’ Scheme. It is important to get the full picture on how this regulation might apply to your project in order to find out how it affects the VAT liability of supplies you are making, and the conditions it will be necessary to meet to qualify for the correct liability.

If your work falls into this category, please call our free VAT helpline to find out more. You can reach our team of VAT experts on 0333 3638 012 to get the answers to all your questions.

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