The planning rules have been relaxed which makes it more difficult to obtain evidence to support the 5% reduced rate on some building work. What evidence should you obtain?
Reduced rate on building work
The reduced rate of 5% on building works applies to:
- the conversion of a commercial property into residential
- a conversion into a house of multiple occupation (HMO)
- work relating to a change in the number of dwellings – increase or decrease
- the renovation of a house that has been empty for more than two years
- a conversion into a relevant residential building – home for the elderly, student halls of residence etc.
The reduced rate applies to the services of a builder and any materials they supply in the course of construction works.
In order to apply the 5% rate, the builder needs proof that the work qualifies. With certain conversion work the builder would retain a copy of the plans and the planning permission to show that the work qualified if this was questioned during a VAT inspection.
Changed building regulations
However, the building regulations have been relaxed gradually since 2012 and planning permission is no longer required for a great deal of conversion work or change of use from a single household dwelling into an HMO. This has made it more difficult for a builder to obtain the evidence necessary to substantiate the application of the 5% rate.
What evidence is available?
It is still possible to obtain some evidence to support the application of the 5% rate. Examples of the documentation that can be used are:
- the property’s before and after plans to show the building work that has been carried out
- council tax records showing that there has been a change in the number of dwellings in a property; for example, showing that a single house has been converted into flats or that an HMO has been constructed
- electoral register records can support the change of use from commercial into residential use
- a Planning and Building Control Authority is issued in many cases which confirms that work has been authorised and includes a brief description of the work – it may just say something like ‘internal works’ – which is not hugely helpful, but in conjunction with other documentation it can support the use of the 5% rate.
- when converting a property into an HMO the local authority will confirm a reclassification from C3 (single household dwelling) to C4 (HMO)
In addition, when converting a property into a relevant residential building the customer is required to certify the use to which the building will be put (VAT Notice 708, paragraph 18).
Tip: It may also be useful to take photographs of the work that has been carried out to show what has been done.
If you are supplying building services related to converting property, there may not be planning permission to support use of the reduced 5% rate. From the outset, look to gather alternative evidence, such as business rates/council tax records, electoral register records, as well as relevant correspondence.