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HMRC internal manual

VAT Construction

Dwellings - an explanation of terms: what ‘designed as a dwelling or number of dwellings’ means: Note 2(d) - statutory planning consent

The test is whether the dwelling that meets conditions (a) to (c) has been granted planning permission and whether it has been constructed or converted in accordance with such consent.  (One form of statutory planning consent is Permitted Development Rights)

This will be a matter of fact in each case. However, variations to the planning consent, resulting in a change in appearance, or to the composition or distribution of the accommodation, should be accepted. More radical departures resulting, for example, in a much larger dwelling being constructed, should be rejected as failing to satisfy the condition, unless there is evidence that the planning authorities have decided not to pursue the matter.

The following two decisions show the role planning consent plays in determining the VAT liability:

In Allan Ivor Davison (VTD 17130), planning permission had been obtained for the construction of a double garage. Above the garage, the appellant built another storey, which he furnished as a kitchen, living room and bedroom. The tribunal held that although the building was self-contained living accommodation, the work didn’t qualify for zero-rating because it hadn’t been carried out in accordance with statutory planning consent.

 

A similar conclusion was reached in Keith Lamming (TC 00022). In that case, the appellant constructed an independent dwelling rather than the annex with connecting doorway, for which he had received planning permission.

There are various forms of planning consent

Permitted development rights (PDRs)

Background

PDRs (permitted development rights) grant planning permission by development order for particular types of development. They serve to streamline the planning process for specific types of development by removing the need for a full planning application, therefore reducing the information requirements. This means that builders and developers (including self-builders) who carry out certain physical works (for example, for changes of use from specified non-residential buildings into a dwelling or dwellings) can choose not to make a full planning application because the development is allowed by PDRs.

This can impact on the VAT treatment of supplies or claims since in certain circumstances (for example, determining whether a building is designed as a dwelling and eligible for the VAT zero-rate), the law requires a copy of the grant of planning permission.   Therefore, this guidance confirms how PDRs apply in these circumstances.

Relevant legislation for the PDRs

In … The relevant legislation is …
   
England the Town and Country Planning (General Permitted Development) (England) Order 2015, as amended.
Wales the Town and Country Planning (General Permitted Development) Order 1995.
Scotland the Town and Country Planning (General Permitted Development) (Scotland) Order 1992
Northern Ireland the Planning (General Permitted Development) Order Northern Ireland 2015.

Regional application of PDRs

The application of PDRs varies across UK.

England

As part of its aim to simplify the planning system, the government introduced new PDRs which permit the conversion (change of use) of specific categories of buildings into dwellings. These buildings include those that have been used, prior to change of use, as shops, for provision of financial and professional services, betting offices, pay day loan shops, launderettes, amusement arcades or centres, casinos, offices, storage or distribution centres and agricultural buildings. (From 1 October 2017, this will also include buildings in light industrial uses). 

PDRs may be subject to specific limitations (for example size) or with specific exclusions (for example works on listed buildings) as set out in legislation. These PDRs may require the prior approval of the local planning authority (LPA) in respect of particular planning matters such as flooding, transport and highways, and contamination, and so on as set out in legislation in respect of the individual rights.

Where prior approval is required under a national PDR, the LPA has a specified period (usually 56 days) following the date on which the application was received to grant or refuse permission or advise that prior approval is not required. If notification is not given within the specified period, the applicant has deemed consent and the development may proceed in accordance with the details specified in the application.

Wales and Northern Ireland

In Wales and Northern Ireland there is currently only one PDR which allows for the conversion of commercial buildings to dwellings. That is the conversion into a flat of the upper floors of buildings where the ground floors are being used as shops or for the provision of financial/professional services. As long as the conversion meets the conditions set out in the PDR prior approval for development is not required.  The legislation supporting this is: (for Wales) Class F of Part 3 of Schedule 2 to The Town and Country Planning (General Permitted Development) Order 2015/418; and (for Northern Ireland) Class E of Part 4 of Schedule 1 to the Planning (General Permitted Development) Order (Northern Ireland) 2015/70.

Scotland

At present, there are no PDRs in this region in respect of the creation of dwellings from former commercial buildings.

Further PDRs may be issued in the future.  The same rules will apply to any new PDR.

Evidence of permission (PDRs)

In all cases, HMRC will require evidence to be held or produced that the work is lawful in order for the zero or reduced rate of VAT to apply or for a claim to be eligible under the DIY House Builder Scheme.  A builder, developer or DIY House Builder Scheme claimant relying on PDRs (rather than an individual grant of planning permission following an application) must be able to provide one of the following:

  • a written notification from the local planning authority (LPA) advising of the grant of prior approval;
  • a written notification from the LPA advising that prior approval is not required; or
  • evidence of deemed consent (where the specified period for a determination of prior approval  by the LPA has expired with prior approval not being granted or denied); or
  •  in respect of the PDR for flats above shops, that no consent was required.

In order for there to be deemed consent  a person must have evidence that the work is a permitted development (see below) and the LPA has been informed of the project,  and be able to confirm that no response was received within the relevant specified period (usually 56 days).

As evidence that the work is permitted development, the developer should include all of the following (where the documents exist):

  • plans of the development;
  • evidence of prior use of the property (for example, business rates classification);
  • information as to which part of the planning legislation is relied upon for the development; and
  • a lawful development certificate where one is already held.

Developments carried out under a PDR must still meet the appropriate building regulations. 

Local Development Orders (LDOs)

An LDO may be granted by an LPA to provide statutory planning permission for specific types of development within a defined area.  Its purpose is to encourage development by:

  • Providing planning certainty as the nature and shape of development is fixed by the authority up front; and
  • Removing the need for developers to make a planning application to the LPA.

LDOs may be used to support housing, or business /employment uses - for example to support Enterprise Zones.  LDOs are flexible tools. They may be permanent or time variant (depending on the aims and conditions).

An LPA can set out limitations and conditions in an LDO in much the same way as the Secretary of State can in respect of permitted development rights in the General Permitted Development Order.

Neighbourhood Development Orders (NDOs) (England only)

An NDO can be used only in a designated neighbourhood planning area in England to grant planning permission for development specified in the Order. Its purpose is to give a community the opportunity to progress the type of development that it would wish to see in its neighbourhood.  There is flexibility as to the size of land that an NDO covers.  However, it must fall within the specific designated neighbourhood planning area to which the community proposing the Order is the qualifying body. Development must meet any limitations or conditions set out in the Order. An NDO can grant either unconditional or conditional planning permission for development.

Evidence of permission (LDOs and NDOs)

A planning application is not required for development set out in LDOs and NDOs, therefore there may not be a formal letter granting planning permission.  Details of any LDO or NDO are usually available on the local planning authority website. The Order will set out the scope of the development permitted and any limitations and conditions to be met.