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Yes evidence is key, and for this reason it is worth submitting a Certificate of Lawful Development so that there is a carbon record of the previous condition and proposed works (ie: Conversion of 2no. flats to 1no. single dwelling-house).
You are right that it is the contractor who takes on responsibility, so you may want a VAT consultant to confirm the reduced rate. I also believe that not all works are 5% rated (ie: joinery), and a VAT consultant would be able to give you a comprehensive list
This should fall under permitted development. I'm currently doing this the other way around - turning two flats back in to one house. When I checked, both directions fall under permitted development - assuming your not doing any other significant works that would require planning permission.
The 5% VAT thing is real (and a lifesaver), but you'll need to get something in writing to show your builder because ultimately it's them that has to bill you at 5% and then prove why if HMRC come calling.