CIL Watch: We need to talk about indexation (again)....
First, an apology. This is not one of my usual ‘rapid response’, ripped from the headlines, articles. It is nerdy, technical and niche. Nonetheless, it is also important.
Something seems to be going wrong in the world of CIL Indexation…. again….
In just the last week, I have had two cases cross my desk (from very different parts of the country), where indexation has been erroneously applied. An error resulting in potential overpayments of tens of thousands of pounds.
In both instances, an outline planning permission was involved. In both cases, indexation had been applied up to the index year that applied to grant of the relevant reserved matters approval, rather than to the outline permission.
As such, this post is a ‘Planoraks’ style back-to-basics guide to what the CIL Regulations actually say about how to calculate indexation on outline planning permissions.
CIL Indexation: The calculation.
In the vast majority of cases*, the indexation of a permission's CIL liability is calculated using the following formula.
Where
A = the deemed net area chargeable at rate R, calculated in accordance with sub-paragraph (6);
IP = the index figure for the calendar year in which planning permission was granted; and
IC = the index figure for the calendar year in which the charging schedule containing rate R took effect.
The crucial figure to note for the rest of this article is IP - which is very deliberately defined in Schedule 1 of the CIL Regulations (as amended) as the ‘index figure for the calendar year in which planning permission was granted’ (my emphasis).
This choice of wording is important.
For other key concepts in the CIL regulations, such as establishing if a structure is a ‘relevant building’ or indeed an ‘in-use building’ the critical date is not the date on which a permission is granted, but rather “the day planning permission first permits the chargeable development”.
The day on which a planning permission first permits the chargeable development is set out in Regulation 8 of the CIL Regulations.
It is a bit of a moveable feast, as it changes depending on whether a permission is:
- Full
- Outline
- Phased and/or
- Unphased.
As such, if the government had intended indexation to run beyond the grant of planning permission, this could easily have been achieved. All they would have needed to do was define IP in relation to ‘the day planning permission first permits the chargeable development’.
They did not.
Indexation and Outline Permissions
Although it isn't immediately obvious from the extract above, ‘planning permission’ is a defined term for CIL purposes.
The definition of a ‘planning permission’ is contained in Regulation 5 of the CIL Regulations. It is a lengthy definition that includes express grants of planning permission by local planning authorities and the secretary of state, consents granted on appeal, or through a general development order (this is why CIL can apply to PD schemes) amongst other things. Crucially it does not include reserved matters approvals (or certificates of lawfulness, but that is a post for another day).
The reason for this is simple. A reserved matters approval is not a planning permission…. It is simply the later approval of matters that were reserved when the outline planning permission was granted.
The fact that a reserved matters approval is not a planning permission has long been acknowledged by government.
It is the reason why outline permissions granted before a charging schedule has been adopted do not attract CIL, even if the reserved matters approval is granted after a charging schedule has come into effect.
You do not have to take my word on that. Para 112 of the government's CIL guidance says:
"How do the transitional provisions apply to planning permissions granted in outline prior to the levy coming into force?
Where an outline permission has been granted before a charging schedule is in effect, but reserved matters are not approved until after a charging schedule has come into effect, the development should not be subject to the levy.
Paragraph: 112 Reference ID: 25-112-20190901
Revision date: 01 09 2019"
It is also the reason why indexation for outline planning permissions can only run between the relevant index figure for the year in which the charging schedule was adopted and the relevant index figure for the year in which the outline planning permission was granted.
Again, if you want external confirmation of this, I refer you to the government's own CIL guidance. In particular, to the flow chart included at Paragraph: 106 Reference ID: 25-106-20190901, which handily forms the image accompanying this article.
This flowchart sets out the process by which you calculate the CIL liability for a development in the circumstances where a charging authority has revised its charging schedule after an outline planning permission was granted, but before the grant of a reserved matters approval.
(If you are interested: you use rates set out in the charging schedule that was in place when the outline permission was granted.)
The point to note, for the purposes of this discussion, however, is that the flowchart expressly confirms that the IP figure is fixed when the outline planning permission is granted. All that the reserved matters application does is confirm the correct mix of charging rates and the areas of development to which they are applied.
In short, and because it clearly needs repeating:
When calculating the CIL liability for an outline planning permission, indexation runs:
- from relevant index figure for the year in which the charging schedule was adopted; to
- the relevant index figure for the year in which the outline planning permission was granted.
When it comes to indexation, the date of any subsequent reserved matters approval is irrelevant.
Ps. The eagle eyed amongst you may have noticed my use of the word “again” in the title of this post. That is because I am old enough to remember the last time erroneous CIL indexation practices became a significant problem….
If you are not, I thoroughly recommend reading this Simonicity article from 2017 and, in particular, the VOA Appeal Decision embedded in it.
That particular indexation issue was corrected by The Community Infrastructure Levy (Amendment) (England) (No. 2) Regulations 2019, after almost three years of arguments, voa appeals, pre-action protocol letters and persistent lobbying.
Something to bear in mind, if you think replacing the CIL regulations will be straightforward….
* the main exceptions being ‘transitional cases’ (where the original permission pre-dates CIL) and some s.73 permissions, but I am not dealing with them in this post - it is quite long enough already.
Key Contact
