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HM Revenue and Customs Brief 9/16 - VAT treatment of conversions of non-residential buildings


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Published 3 May 2016 


This brief clarifies HM Revenue and Customs’ (HMRC) position on the VAT treatment of conversions of certain non-residential buildings into dwellings following the introduction of additional permitted development rights (PDRs).

Who should read this?

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. This also applies to any person carrying out a similar conversion who will be making a claim for a refund of VAT under the DIY House Builder Scheme.

PDRs apply differently across the UK as planning is a devolved matter. If or when further PDRs are introduced that extend their scope to cover other types of conversions of non-residential buildings into dwellings, the terms of this brief will equally apply to them wherever they are in the UK.

What are PDRs?

PDRs are a national grant of planning permission for particular types of development as set out in the legislation. They serve to streamline the planning process by removing the need for a full planning application, therefore reducing the information requirements.


As part of its aim to simplify the planning system, the government has introduced additional 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, amusement arcades or centres, casinos, offices, storage or distribution centres and agricultural buildings.

PDRs may be subject to specific limitations (eg size) or with specific exclusions (eg works on listed buildings) as set out in legislation. These PDRs may require the prior approval of the local planning authority (LPA) although this is normally reserved for certain planning matters such as flooding, highways and contamination, etc as specified in the individual rights as set out in legislation.

Where prior approval is required under a national PDR, the LPA has a period of 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 this time, the applicant has deemed consent and the development may proceed in accordance with the details specified in the application.


Wales currently applies PDRs in only one situation. That is the conversion into flats 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 is of this type of building into a dwelling, the conversion may proceed without the need to establish whether prior approval is required.

Scotland and Northern Ireland

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

Current VAT treatment

To zero-rate the sale of all newly converted dwellings (from non-residential buildings) or to make a valid claim under the DIY House Builder Scheme, the newly converted building must meet the requirements of a building ‘designed as a dwelling’. Further information can be found in Section 14 of Notice 708: buildings and construction (14 August 2014).

One of the conditions is that the developer, builder or DIY House Builder Scheme claimant must be able to demonstrate that statutory planning consent (SPC) has been granted in respect of that 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 SPC. Further information can be found in Section 7 of Notice 708: buildings and construction (14 August 2014).

Following the introduction of PDRs, individual SPCs will no longer be required for some developments making the meeting of this condition difficult.

Policy clarification

HMRC is clarifying its policy concerning the VAT treatment of works where an individual planning application is not necessary because statutory planning consent has been granted though PDRs.

HMRC will continue to require evidence to be 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. Where the builder, developer or DIY House Builder Scheme claimant establishes that the conversion is covered by a PDR and individual SPC is not required, they must be able to evidence it by at least 1 of the following:

a) Written notification from the 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.

Developments carried out under a PDR must still meet the appropriate building standards. Should any circumstances arise where building control is not required, evidence from the local authority confirming this should be provided.

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© Crown Copyright 2016.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2016-05-04 00:00:00 in Tax Articles

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