[2009] UKFTT 44 (TC)

TC00022

VALUE ADDED TAX – Zero-rating – Construction of new building attached to a dwelling – Whether within the provisions of VATA 1994 Sch 8, Grp 5 – Appeal dismissed

LONDON TRIBUNAL CENTRE

	KEITH LAMMING	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	MISS J C GORT (Chairman)
						MR K GODDARD MBE

Sitting in public in Norwich on 25 February 2009

 The Appellant appeared in person

Mr Christian Zwart of counsel, instructed by the Solicitors Office, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This is an appeal against a decision of the Commissioners for HM Revenue and Customs (“HMRC”) to issue a Notice of Assessment for Value Added Tax in the sum of £19,804 plus interest in respect of the period 01/09/03 to 31/05//05 issued on 30 November 2006 under the provisions of section 73 of the Value Added Tax Act 1994. 

2.	The assessment is in relation to a series of invoices issued by Mr Lamming in respect of work he did on which he charged VAT at a zero-rate which it is contended by HMRC should be charged at the standard rate for VAT. 

The facts

3.	Mr Lamming carries on business as a building contractor from premises near Norwich in Norfolk.  He was registered for VAT with effect from 27 January 1994.  In May of 2003 Mr Lamming was approached by a Mr R C Furze, an architect for whom Mr Lamming had previously done some work, to submit a quotation for the construction of a house for his own use.  The specification provided to Mr Lamming was entitled ‘Provision of new garages and ancillary rooms with residential accommodation above at Southern Cottage, Green Lane, Wicklewood Wymondham, Norfolk’.  The plans themselves were headed ‘Garages and Residential Unit, Green Lane, Wicklewood’.  Mr Furze confirmed to Mr Lamming that he had Full Planning Approval with no conditions (except for the standard time limit).  In June 2003 Mr Lamming submitted a quotation based on those documents and zero-rated the work for VAT on the basis that it was a new build.

4.	It became apparent in the course of the hearing that the plans shown to Mr Lamming by Mr Furze were not the same as the plans to which the local authority had given approval.  The building which Mr Lamming was asked to construct was to be attached to Southern Cottage, but was to be on a considerably larger scale than Southern Cottage.  The new building was to be one of some 3,200 sq. ft., whereas Southern Cottage was only 1,960 sq. ft.  Mr Furze’s intention is set out in a letter of 3 March 2003 which he wrote to the local planning officer.  That letter is headed ‘Re-Siting existing garages and stables and erection of new garages and residential annexe.’  The final paragraph states:

“I confirm previous letters and assurances given at my meeting with Mr Trett that the annexe is for my use only, in conjunction with my Daughter and her Husband at Southern Cottage, and we will accept any condition that is included with an approval, preventing the hiving off of the annexe for a separate sale or purpose.”

Planning approval, which Mr Furze had applied for on behalf of his son-in-law Dr Bell, the owner of Southern Cottage, was granted on 9 May 2003 and full permission was granted for carrying out of the development “in accordance with the application form and plans submitted …”; the heading is as in Mr Furze’s letter and that is repeated in the application for planning permission. When he submitted the application Mr Furze enclosed an application fee of £220, which is the fee appropriate to an application for a new house, whereas the fee for an extension would have been £110. However, at no stage was any application made for a change of use, the existing use on the application for planning permission being given as ‘residential’.    

5.	The plans approved by the local authority in 2003 are stamped by the planning department and two of the three drawings are stamped ‘Approved plan’.  The plan which is not stamped ‘Approved’ is stamped by the planning department and also is stamped ‘file copy’. That plan differs in an important respect from the plans which were given by Mr Furze to Mr Lamming.  This plan shows an entrance way between the new building and the existing Southern Cottage.  On the approved plan the new building is marked ‘proposed extension’, which does not appear on the plan given to Mr Lamming.  Also on Mr Lamming’s copies of the plans there is no access shown between the new building and Southern Cottage. There therefore appears to be a complete separation between the new building and Southern Cottage.  There is no datestamp on the documents Mr Lamming was given, and there is no way of knowing whether they preceded the documents submitted for approval or were created subsequently. It is however the case that when the building was completed there was a doorway between it and the cottage, albeit one that remains locked permanently. There were various other modifications as is usual in any building project.  It is also the case that the plans submitted to the local authority are reflected in the full planning permission that was granted.  

6.	At some stage Mr Lamming obtained advice from a firm of accountants, and also from a solicitor, both of whom confirmed that there was no planning condition which prevented the new building from being sold independently of the cottage.

7.	A VAT inspection of Mr Lamming’s books was carried out on 10 February 2006.  At that visit a copy of the planning approval obtained by Mr Furze was asked for.  Mr Lamming had not obtained such a document, it being his position that it was not for a contractor to check the word of a professional architect.  A copy was obtained and sent to HMRC and as a consequence it was concluded by the visiting officer on 27 March 2006 that what was built was not a new house but an annexe to the existing cottage. That remains the position of HMRC which continues to be contested by Mr Lamming, despite his having written to HMRC on 12 April 2006 stating in the opening paragraph:

“I have spoken to the Architect, Mr Furze, in regard to the description of “Annexe” in the Planning Consent.  This stems from the Planning Authority who insisted that the proposed building be annexed to the existing Cottage and they were not prepared to approve a detached dwelling on the Site.”

8.	The specific arguments relied on by Mr Lamming in support of the above matters are as follows.  In respect of the correct meaning of the word “annexe” he had been informed by Mr Furze that in his application he had used the word “annexe” to denote “joined to” and are not “ancillary to”.  The differing sizes of the new dwelling and Southern Cottage supported this.  He disputed a contention in the statement of case by HMRC that the local planning authority had insisted on the use of the word “annexe”, but submitted that the local authority had insisted only that the new dwelling was joined to the Cottage.

The law

9.	The Value Added Tax Act 1994 (“VATA”) where relevant states:

Section 30  

(1)	Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section – 

(a)	No VAT shall be charged on the supply; but
(b)	It shall in all other respects be treated as a taxable supply; and accordingly the rate to which VAT is treated as charged on the supply shall be nil.

(2)	A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.

Schedule 8 provides:

…

Group 5:

Item

…

2.	The supply in the course of the construction of – 

(a)	a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or
(b)	…

of any services related to the construction other than the services of an architect, for their or any person acting as a consultant or in a supervisory capacity.

…

4.	The supply of building materials to a person to whom the supplier is supplying services within Items 2 or 3 of this Group which include the incorporation of the materials into the building (or its Site) in question. 

Notes:

…

(2)	A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied – 

(a)	a dwelling consists of self-contained living accommodation;
(b)	there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
(c)	the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
(d)	statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

…

(15)	The reference in Item 2(b) of this Group to the construction of a civil engineering work does not include a reference to the conversion, reconstruction, alteration or enlargement of a work.

…

(20)	Item 2 and Item 3 do not include a supply of services described in paragraph 1(1) or 5(4) of Schedule 4.  The Town and Country Planning Act 1990 (as amended) makes provision for the development of land.  It provides as follows:

Section 55(1)

Subject to the following provisions of this section, in this Act, except where the context otherwise requires, “development”, means the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land.

…

(3)	For the avoidance of doubt it is hereby declared that for the purposes of this section –

(a)	the use as two or more separate dwelling houses of any building previously used as a single dwelling house involves a material change in the use of the building and of each part of it which is so used;
…

Section 57(1) 

Subject to the following provisions of this section, planning permission is required for the carrying out of any development of land. 

Section 70(1)

Where an application is made to a local planning authority for planning permission –

(a)	subject to sections 91 and 92, they may grant planning permission, either unconditionally or subject to such conditions as they think fit; or
…

Section 73(1)

This section applies, subject to subsection (4), to applications for planning permission for the development of land without compliance with conditions subject to which a previous planning permission was granted.

Section 73A(1)

On an application made to a local planning authority, the planning permission which may be granted includes planning permission for development carried out before the date of the application.

(2)	Subsection (1) applies to development carried out – 

(a)	without planning permission;
(b)	in accordance with planning permission granted for a limited period; or
(c)	without complying with some conditions subject to which planning permission was granted;
(d)	planning permission for such development may be granted so as to have effect from – 

(i)	of the date on which the development was carried out; or
(ii)	if it was carried out in accordance with planning permission granted for a limited period, the end of that period.

Section 171A(1)

For the purposes of this Act – 

(a)	carrying out development without the required planning permission; or … constitutes a breach of planning control.

171B(1)

Where there has been a breach of planning control consisting in the carrying out without planning permission of building, engineering, mining or other operations in, on, over or under land, no enforcement action may be taken after the end of the period of four years beginning with the date on which the operations were substantially completed.  

(2)	Where there has been a breach of planning control consisting in the change of use of any building to use of a single dwelling house, no enforcement action may be taken after the end of the period of four years beginning with the date of the breach. 

Section 172(1)

The local planning authority may issue a notice (in this Act referred to as an “enforcement notice”) where it appears to them – 

(a)	that there has been a breach of planning control; and
…

The Respondents’ case

10.	The Respondents’ case is that Mr Lamming cannot qualify within Item 2(a) as (i) the planning permission of May 2003 makes provision for direct internal access from the dwelling (the new building) to another dwelling (Southern Cottage) and therefore he falls foul of Item 4 Note (2)(b) to Group 5 of Schedule 8 of the Act, (ii) he falls foul of Note 2(c) of the above because the express terms of section 171A(1) of the Town and Country Planning Act 1990 (as amended) prohibits discrete use by reason of the absence of a statutory consent as is required by section 55(1), 55(3)(a) and 57; and (iii) a new building cannot come within (2)(c) of the above because statutory planning consent has not been granted.

11.	For the above reasons it was submitted that the new building could not qualify within the meaning of  “designed as a dwelling” and therefore could not satisfy the description under Item 2(a) and (4) of Group 5 of Schedule 8 as required by section 30 of VATA.

12.	It was further submitted by Mr Zwart that the new building was not designed as a dwelling as required by the Act.  It could only qualify as a “building designed as a dwelling” if it satisfied all four criteria of Note 2.  The factual matters relied on by HMRC are that in respect of Note (2)(b) the May 2003 permission made provision for internal access by reason of two internal doorways as shown on the Approved Plans between the new building and Southern Cottage.  In respect of Note (2)(c), in the present case the Planning Authority had not been prepared to approve a detached dwelling, and for this the  letter dated 12 April 2006 written by Mr Lamming to HMRC was relied (see above). Parliament, by the Town and Country Planning Act section 55(3)(a), had expressly stated that a change of use to two or more dwellings was a “material change of use”, by section 55(1) that such a change of use is “development”, and by section 57 that such development required planning permission and without such planning permission for that discrete use, there was a prima facie breach of planning control under section 171A(1). This absence of express statutory planning permission caused the new building to fall foul of Note (2)(c), in that separate use of the dwelling was prohibited.  

13.	Similarly, statutory planning consent had not been granted in respect of the particular new building, because the compass of the local planning authority’s statutory power to grant planning permission is confined by the terms of the application document, the authority was not able in law to grant more than that which it had been asked in fact to grant, and in the present case Mr Furze had applied for, and received, planning permission for the development as described. The description of the development permitted is confined to an “annexe”, which term assumes an addition to something other – here a dwelling. The “approved drawings” accord with that description, the ground floor showing opening doors between the new building and Southern Cottage.

14.	Finally Mr Zwart submitted that as a public document, the May 2003 planning permission, had by law to be construed within its four corners, and Mr Furze’s subjective intention was irrelevant in respect to its interpretation. There was no evidence that the Local Planning Authority had granted planning permission for a discrete residential unit, nor that there had been an application under a section 73 or 73A, nor an application for a section 191 certificate to the local authority.  Therefore Note 2(b) cannot be satisfied.  

15.	Mr Zwart had referred us to numerous authorities which we will not cite here as this case turns on the statute law as applied to the relevant documents.

The Appellant’s case

16.	Mr Lamming was first given plans which show no interconnection between the proposed new building and Southern Cottage.  Subsequently he was given by Mr Furze a set of plans purporting to be those on which the planning permission was granted, however there are various differences between those plans and the ones for which planning permission was granted, as set out above.  The Specification given to Mr Lamming was entitled “New garages and ancillary rooms with residential accommodation above”, and Mr Furze confirmed to Mr Lamming that he had full planning approval with no conditions, other than the standard time limit, attached.  Mr Lamming was at no stage in any doubt that this was new work to create an independent new dwelling where one had not previously existed.  In part it was the difference in scale between the new building, being 3,200 sq ft, and that of a normal “granny annexe” of some 700-800sq ft, that influenced him.  It was also his case that Southern Cottage was itself only 1,960 sq ft, and therefore the new building could not be considered ancillary to Southern Cottage.

17.	The principal matters relied on by Mr Lamming in this appeal are:

(i) VAT Notice 708 Clause 3.2.4 which states “You can zero-rate the enlargement or extension to an existing building to the extent that the enlargement or extension contained an additional dwelling provided:

I.	The new dwelling is wholly within the extension 
II.	The dwelling is designed as a dwelling.

(ii)	The meaning of the word “annexe” 
(iii)	The fact that the new building had been sold off separately, and this had been permitted by the local authority 
(iv)	There was no express prohibition in the wording of the planning consent granted on the separate use of the new building as an independent dwelling
(v)	The assurance by Mr Furze a qualified architect, that the new building was not an extension and was a separate dwelling.

18.	It should be noted however that Mr Lamming had in the course of correspondence with HMRC submitted the drawing he had initially been given which showed no connection between the new building and Southern Cottage. As a consequence, on 14 August 2007 an officer of HMRC had written to him stating inter alia that it was common ground that conditions (a) and (b) of Note (2) to Item 4 to Group 5 were satisfied in that the dwelling did consist of self-contained living accommodation and there was no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling.  The officer by that letter had indicated that the only issue between the parties was Note (2)(c) as to whether or not separate use or disposal of the dwelling was prohibited by the terms of any covenant, statutory planning consent or similar provision. This position was not adopted on behalf of HMRC by Mr Zwart, and the evidence does not support that position.  Mr Lamming himself had built an access door between the new building and Southern Cottage.  

19.	Mr Lamming had relied on a planning approval he had been given in respect of his own property in South Norfolk to building a “granny annexe”, which contained a written condition to restrict its use to the family in the principal house.  He produced to the Tribunal a copy of another planning approval by South Norfolk Council again with an explicit condition preventing independent use.  In the present case he relied on the absence of any such restriction. 

20.	Mr Lamming disputed that HMRC were entitled to rely on what he considered to be an implied condition that use was restricted.  He submitted that without such a restricting condition the local planning authority would not be able to resist awarding a Certificate of Lawfulness for independent use under the 4-year rule.  

21.	Mr Lamming further relied upon the fact that he had been told by Mr Furze that in applying for planning permission Mr Furze had paid the full fee of £265 for an independent unit of accommodation rather than the lesser fee payable for the extension to a house. (The planning application in fact shows that a fee of £220 was paid, as stated above.)

22.	Mr Lamming believed that the work carried out was new work, being a new dwelling attached to an existing dwelling with a communal entrance for giving entry to two dwellings on different floor levels which complied with the Notice 708 3.2.4 and 708 15.3.  He submitted that HMRC were not entitled to rely on an implied condition based on the meaning of the word annexe, and they were not able to say beyond doubt that the dwelling was not independent.  

Reasons for decision

23.	Mr Lamming presented his case to us in a very helpful and clear way, and we have no doubt that he genuinely believed that the new building was a new dwelling within the terms of the VATA.  We consider that he was mistaken in this belief and was misled by the nature of the original drawings given to him by Mr Furze which showed that there was no interconnection between the new building and Southern Cottage, by the fact that Mr Furze was an architect and therefore Mr Lamming  felt entitled to rely on Mr Furze’s own opinion of the situation, and by the fact that he did not see fit to ask to see the planning application on which the permission was based before he commenced the work. However this last may not have been of much material significance given that Mr Lamming was relying on the absence of a specific prohibition by the planning authority.

24.	Mr Zwart set out the relevant statutory provisions of the VATA and the Town and Country Planning Act very clearly and we adopt his arguments as set out above.  It comes down to the fact that a new dwelling requires specific planning permission and in this case there was no such specific planning permission.  Even were there to be a retrospective planning permission granted, the relevant time for HMRC to consider whether a building is to be zero-rated is at the time of completion.  In this case, at the time of completion the new building and Southern Cottage did have a connecting door. It is irrelevant that it might be possible to sell off the new building separately from Southern Cottage.  The fact that the door is always kept locked, and that Mr Furze now lives a completely independent life from that of his son-in-law and daughter who occupy Southern Cottage is irrelevant to the position in law, which is that there was at no time planning permission for an independent dwelling, and the new building does not fall within the exemption provided by Group 5 of Schedule 8 of the VATA.  This appeal is dismissed.

MISS J C GORT
CHAIRMAN

RELEASED: 8 April 2009

LON 2007/1599