Barn Conversion - getting started - CIL and VAT

[Glenn]

Hello, newbie here - apologies in advance if this has been addressed before, but I didn't find anything

 

1. In process of buying an agricultural building for conversion - ie as  of now, prior to exchange/completion

2. Change of Use permission is in place

3. After I have bought, I'll be submitting full planning permission, as there are a couple of changes needed that don't fit into change of use

 

Agreed to buy without any services in place. In the meantime, vendor has kindly been organising water connection (new pipework from main road, >100m away, cost to be shared with other neighbouring conversion, and redoing of existing connections for 3 other properties). I'm also now looking at electrical connection

 

My dumb questions are:

a. These are new water and electrical connections, so they qualify for reduced 5% VAT? ie I can include this work in my VTA reclaim, even though I don't yet own the property, nor have full planning permission?

b. Anyone had experience of a water connection like this that is well away from the site of the property, hence may not qualify for reduced rate?

c. Is there a Catch-22 in that the CIL period is triggered' by the start of development, but I can't submit my CIL form until I have PP? Is connecting water and power to a building considered development and hence triggering. I have no idea if there is any crossover between the VAT reclaim folder of evidence and claims, and the CIL checks

 

And on a separate note

d. The agricultural building to be converted comes with some sheds. Once I have title I'd like to work on these to make them waterproof, for storage of goods/tools etc. Does working on buildings that are not covered by the change of use affect the CIL at all?

 

Apologies again that these will seem so obvious/confused to experienced forum members. I just don't want to fall into a cost pit through my keenness to get going while the PP process goes on.

 

Regards

Glenn

 

 

[Temp]

1 hour ago, Glenn said:

My dumb questions are:

a. These are new water and electrical connections, so they qualify for reduced 5% VAT? ie I can include this work in my VTA reclaim, even though I don't yet own the property, nor have full planning permission?

b. Anyone had experience of a water connection like this that is well away from the site of the property, hence may not qualify for reduced rate?

c. Is there a Catch-22 in that the CIL period is triggered' by the start of development, but I can't submit my CIL form until I have PP? Is connecting water and power to a building considered development and hence triggering. I have no idea if there is any crossover between the VAT reclaim folder of evidence and claims, and the CIL checks

 

And on a separate note

d. The agricultural building to be converted comes with some sheds. Once I have title I'd like to work on these to make them waterproof, for storage of goods/tools etc. Does working on buildings that are not covered by the change of use affect the CIL at all?

 

 

a) Regarding VAT:

 

A water connection should be 0% rated for a new house, 5% rated for a conversion (reclaimable), and standard rated 20% for a replacement supply to existing building (not reclaimable).  What you would normally do is ask the water/electric company for a quote at the appropriate VAT rate before accepting it. In your case 5%, and you can reclaim that. However if you paid standard rate you could not reclaim that because VAT paid to a supplier in error cannot be reclaimed from HMRC.

 

Problem is you are effectively buying the water connection from the seller.  If the seller of the land is a VAT registered company and he's putting the costs through his books then he should charge you 5% VAT on your share and you can reclaim it. He can also reclaim the difference in VAT between the standard rate he pays the water co and the 5% he charges you when he makes his quarterly return. I would ask for an invoice that just mentions water supply to your barn rather than a share of the whole job. Must be dated after you own the property. Ideally after you get PP but I think change of use might be enough. HMRC seem to make up the rules as they go along.

 

If the seller isn't VAT rated he may just have one invoice from the water co and plans to split it informally. It will almost certainly have standard rate VAT on it and it will be hard to get that back.. You could try asking him to go back to the water co and ask for multiple invoices all with different VAT rates but good luck with that.

 

b)  VAT on long connections and diversions..

 

See VAT 708 and in particular section 3.3.4b  which allows "Work closely connected to the construction of the building" to be 5% rated.

 

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708

 

Quote

 

 

3.3.4 Work closely connected to the construction of the building

<snip>

(b) produces works that allow the building to be used, such as works in connection with the:

means of providing water and power to the building (this can extend to the work required to make the connection to the nearest existing supply)".
 

 

 

Again it would be better to wait until you have PP but change of use might be sufficient?

 

c) The CIL and exemption

 

If you plan to extend the barn and need the CIL exemption then for safety I would get the seller to run water to your plot boundary and stop there. Don't do any work on site. Connect it to the house later after the PP and CIL Exemption paperwork is all done. Beware its a multi part process detailed at the top of one of the forms. Follow it to the letter and ask for receipts. One lost form and you become liable.

 

Three things:

 

* A barn conversion (without increase in area) is normally exempt provided the barn has been in lawful use for a continuous 6 months out of the three years prior to planning permission first permitting development. Check!

 

* There might be CIL to pay on any increase in floor area. If you plan to extend the barn beware the way the area is calculated is strange. Normally the first 100sqm of new floor area is exempt but I don't believe this is the case for a conversion. I believe the 100sqm gets used up by the conversion so the CIL is paid on all new increase in area. Ill try and find a reference.

 

* That said you should be exempt from all CIL as a self builder. However some councils argue the self build exemption does not apply to conversions only new builds! If they try that trick on you refer them to this case I found last year..

 

 

 

 

 

 

 

Edited January 14, 2020 by Temp

[Temp]

1 hour ago, Glenn said:

And on a separate note

d. The agricultural building to be converted comes with some sheds. Once I have title I'd like to work on these to make them waterproof, for storage of goods/tools etc. Does working on buildings that are not covered by the change of use affect the CIL at all?

 

I believe not. However it might be best to formally apply for change of use to residential (business?).

 

Suppose you went ahead and converted one to a games room or industrial unit. Then four years later a neighbour complains and the council investigate. They could ask you to submit an retrospective application for "change of use" and grant it. Normally a change of use doesn't trigger the CIL but that's only true if the building has been "in lawful use for at least six months in the three years prior to the development being permitted" which wouldn't be the case because it had been illegal for 4 years.

 

If you are submitting a PP soon anyway you might consider including converting a shed  to a "garage" in that. That would allow you to reclaim VAT on the materials used.

 

VAT 708 again...

 

Quote

 

 

7.6.1 Garages

You can reduce rate the:

   * conversion of an outbuilding into a garage

   * construction of a new detached garage

   * construction of a drive serving the garage

 

This is provided both these conditions are met:

 

* the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion

* the work is carried out at the same time as the qualifying conversion
 

 

 

 

Edited January 14, 2020 by Temp

[Temp]

Oops I forgot to welcome you to the forum!

[Glenn]

Thank you so much for the quick and detailed replies, incredibly useful! May I apologise in turn for my tardy response.

 

1. A nugget on timing in particular stood out - "I would ask for an invoice that just mentions water supply to your barn rather than a share of the whole job. Must be dated after you own the property."  As the work has been done and I won't own the property for a while, I'm thinking I might need to forego the 15% (diff between 20% and 5%) savings from invoices raised ahead of me owning the property - 1. water connection at road, 2. work done to run pipe from road to property, and 3. electricity connection. Set against the risk of losing the whole CIL excemption, I might just have to suck it up

 

2. CIL liable on a conversion. I'm self build and under 100m2 (it's a small building), but I am presumably adding floor area, as a 1st floor is created. I can only apply for the excemption and see what happens I guess

 

3. Fixing the other building(s) next to the building to be converted, at the same time, so that VAT can be reclaimed. As I need to apply for full pp to raise part of roofline anyway, including a garage in the pp application is a great idea, thank you.

 

Regards

Glenn

[stephen margerison]

To claim CIL excemption on a building, my council want proof that it has been habitable,/ used, and that within the last 6 months rates have been paid !!

be very careful with CIL, councils are using every trick in the book to charge you !!

if your plot/building is part of one planning application, then you may find that ANY start ( water, drains roads demolition) on ANY part of the site would constitute you making a material start, and you would be charged CIL

I have gone back to planning for an amendment, to split the application, in order to demolish a dangerous building on one part of the site.

DO your homework BEFORE you fill in the CIL forms, or you could get BADLY caught out !!  my council also put a charge on the whole site, until the cil has been paid, meaning you could be liable for someone elses CIL 

DO NOT START ANY WORK until you are fully aware of the CIL problem.

regards,

Stephen

[Temp]

8 hours ago, stephen margerison said:

To claim CIL excemption on a building, my council want proof that it has been habitable,/ used, and that within the last 6 months rates have been paid !!

 

I might be wrong but I think you just need to show the building has been lawfully used for any 6 months in the past 3 years?

 

 

 

 

 

 

 

 

[stephen margerison]

yes that's correct, however my council want proof, which I cannot supply, as the "barn area" was used by a couple of doggy guys who were dismantling cars, and did not pay rates.

so I cannot claim any allowance against existing buildings.

regards,

Stephen

[stephen margerison]

I am also concerned that one talks about "converting" a building to a garage or storage area, this would constitute making a material start and trigger CIL !!

Stephen

[Temp]

2 hours ago, stephen margerison said:

yes that's correct, however my council want proof, which I cannot supply, as the "barn area" was used by a couple of doggy guys who were dismantling cars, and did not pay rates.

so I cannot claim any allowance against existing buildings.

regards,

Stephen

 

Are you eligible for the self build exemption?  It's not 100% clear if the self build exemption is meant to cover barn conversions because the legislation talks about "new build". Some councils allow it to apply to barn conversions and see the case I found that was settled before it went to court..

 

 

Edited January 26, 2020 by Temp

[Temp]

What "use class" do the planners think it has? If they think it's an agricultural building then it might be possible to rent it to a farmer for 6 months. Then reapply for planning permission once its eligible. I don't think you have to pay rates on an agricultural barn.

Edited January 26, 2020 by Temp

[stephen margerison]

Cant say I am sure about that, however if you rent it out, the barn is "in use", so  you could win that one

regards,

Stephen