[2010] UKFTT 462 (TC)

TC00727

Appeal number: TC/2009/13725

VAT -Do-It-Yourself Builders Scheme – whether a newly constructed dwelling attached to a pontoon permanently fixed to the land – which was designed to float or rest on the river bed could classed as a building for the purposes of Section 35 of the VAT Act 1994

FIRST-TIER TRIBUNAL

TAX 

	W.R.(BILL) DUNSTER	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: MRS. S. M. G. RADFORD (TRIBUNAL JUDGE)					MRS. R. A. WATTS DAVIES MHCIMA FCIPD	

Sitting in public at 45 Bedford Square, London WC1 on 10 August 2010

The Appellant in person

Mr D. Edwards, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal against the decision of HMRC not to refund the VAT claimed by the Appellant under the DIY Builders’ Scheme (“DIY Scheme”) on the grounds that the Appellant’s construction was not a “the construction of a building designed as a dwelling” within the meaning of Section 35 of the Value Added Tax Act 1994 (“VATA”).
Background and Facts
2.	The Appellant is an architect who practices as a sole trader and is registered for VAT. He built a prototype home called the Zedfactory which he intended as a flood plain development solution. Additionally the structure was built in an eco-friendly way so that it might also provide a solution to the problem of fossil fuels running out.
3.	He had to decide whether to put the project through his business of architecture, design, research and development of renewable energy components or to build it as a self build scheme. His accountants consulted the VAT Helpline and after explaining the nature of the project they were advised that the structure should be built under the DIY Scheme.
4.	It was not realised at the time that the VAT Helpline was not accountable for any advice given.
5.	 Zedfactory is a purpose designed new build home constructed to demonstrate how to build affordable houses in areas already designated by the environment agency as flooded, flood plain or at high risk from flooding as climate change accelerates. It is moored at Nine Elms and attached to a pontoon which is attached to the land with large steel piles which enable the structure to rise and fall with variable water levels. It floats fifty percent or slightly less of the time and for the remainder rests on the mud of the river bed. It is not separable from the pontoon. Drainage, water, telecoms and electricity are permanently connected to land and meet relevant local authority standards. A permanent access gantry permits safe passage on and off the structure.
6.	The Appellant has planning permission for two houseboat moorings and pays council tax. He has a fifty year secure licence from the Port of London which is valid until 2051 to keep the structure on the river bed. Power is exported to the National Grid through Zedfactory’s solar panels.
7.	The Appellant submitted form V431 “VAT refund for DIY builders and converters” claiming refunds in the amount of £18,497.17 in respect of building materials and services supplied in the construction of “a residential dwelling/houseboat”.
8.	HMRC rejected the Appellant’s VAT refund claim on the grounds that houseboats and similar structures were not buildings falling within Section 35 of the VATA.

The Law
9.	Section 35 of  VATA states:
Refund of VAT to persons constructing certain buildings
(1)	Where-
(a) a person carries out work to which this section applies;
(b) his carrying out of the work is lawful and otherwise than in the course or furtherance of any        business, and 
(c) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purpose of the works,
 the Commissioners shall, on a claim made in that behalf refund to that person the amount of VAT        so chargeable.
 (1A) The works to which this section apply are- 
 (a)   the construction of a building designed as a dwelling or a number of dwellings;
 (b)  the construction of a building for use solely for a relevant residential purpose or a relevant charitable purpose; and 
 (c)   a residential conversion
 (2) The Commissioners shall not be required to entertain a claim for a refund of VAT under this section unless the claim— 
(a) is made within such time and in such form and manner, and 
(b) contains such information, and 
(c) is accompanied by such documents, whether by way of evidence or otherwise, as the Commissioners may by regulations prescribe. 
(4) The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group but this is subject to subsection 4A below.
(4A) The meaning of “non-residential” given by Note (7A) of Group 5 of Schedule 8 (and not that given by Note 7 of that Group) applies for the purposes of this section but as if –
(a) references in that Note to Item 3 of that Group were references to this section; and 
(b) paragraph (b)(iii) of that Note were omitted

10.	Schedule 8 of VATA prescribes zero-rated supplies of goods and services. Group 5 deals with the zero-rating of the construction of buildings. The notes to Group 5 define what is meant by “a building designed as a dwelling. It states:
(1)	“Grant” includes an assignment or surrender.
(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) the 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.
…….
(16) For the purpose of this Group the construction of a building does not include:
(a) the conversion, reconstruction or alteration of an existing building; or
(b) any enlargement of or extension to an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings; or
(c) subject to Note 17 below the construction of an annexe to an existing building.
11.	The Value Added Tax Regulations prescribe the form of making a claim and the supporting information required:
Regulation 201
A claimant shall make his claim in respect of a relevant building by:
(a) furnishing to the Commissioners no later than three months after the completion of the building the relevant form for the purposes of the claim containing the full particulars required therein and 
(b) at the same time furnishing to them:
(i) a certificate of completion obtained from a local authority or such other documentary evidence of completion of the building as is satisfactory to the Commissioners,
(ii) an invoice showing the registration number of the person supplying the goods, whether or not such invoice is a VAT invoice, in respect of each supply of goods on which VAT has been paid which have been incorporated into the building or its site,
(iii) in respect of imported goods which have been incorporated into the building or its site, documentary evidence of their importation and of the VAT paid thereon,
(iv) documentary evidence that planning permission for the building has been granted, and 
(v) a certificate signed by the quantity surveyor or architect that the goods shown on the claim were or, in his judgement, were  likely to have been incorporated into the building or its site.
12.	Item 2 of Group 9 of Schedule 8 of VATA specifies that the following are zero-rated supplies:
Houseboats or other floating decked structures designed or adapted for use solely as places of permanent habitation and not having any means of, or capable of being readily adapted for, self propulsion.
13.	The authorities cited were  Dr.J.Parkinson v The Commissioners for Her Majesty’s Revenue & Customs [2001] VTD 17257; Elitestone Ltd v Morris; Steven Gillin v The Commissioners for Her Majesty’s Revenue & Customs [2006] VTD 18367; Pollock v The Commissioners for Her Majesty’s Revenue & Customs [1991] VTD 6638  and John Dennis Julien Winser v The Commissioners for Her Majesty’s Revenue & Customs VTD 19366.
The Appellant’s Submissions
14.	The Appellant submitted that as the VAT helpline had advised them to use the DIY scheme they had not put the building of the structure through their company. If they had done it through their company they could have recovered the VAT. They did not realise that the VAT helpline was not accountable. They were relying on the VAT refund to complete the project as they were unable to obtain a bank loan.
15.	 The Appellant contended that most of the cases cited related to the conversion of a boat whereas what he had constructed was a purpose built structure which could not drift as it was fixed by a chain. It was simply not relevant to quote case studies involving conversions when considering the validity of his particular new build structure. His project was quite different.
16.	It was a purpose designed new build home constructed specifically to demonstrate how to build affordable housing in areas already designated by the environment agency as flooded, flood plain or a high risk from flooding as climate  change accelerated. 
17.	It was not in the national interest for HMRC to define a home that floats as a boat as this stance could prevent occupation and redevelopment of large areas of land served by existing public infrastructure, transport connections and public amenity.
18.	He explained that the home was permanently attached to large steel piles enabling it to rise and fall with variable water levels. Drainage, water, electricity and telecoms were permanently connected to land and met relevant local authority standards. The permanent access gantry allowed safe passage on and off the home. It was supported by wet mud for part of the day and floated at other times. Whilst the structure was clearly designed to be supported by both mud and water the Appellant contended that it was conceptually no different from any other building effectively floating in soil. In areas with weak soil, reclaimed land or a high water table many homes were effectively floating, that is designed as rafts. There was even a recognised structural solution taught at British universities called a “raft foundation”. He contended that it was indefensible to legally classify a floating structure as a boat.
19.	The home does not move backwards and forwards as a boat, has no method of propulsion and has not even been designed to move. He contended that the definitions were out of date and just because the project was described as a houseboat it did not mean that beneath this description it was not a structure. Moving it would be a liability and virtually impossible as because of its height it could not travel under the Thames bridges.
20.	He submitted that planning permission had been obtained and council tax would be paid by the inhabitants. It was constructed from steel, concrete and wood and was powered by renewable energy systems including solar thermal collectors, solar electric panels, a wood pellet boiler and a wood stove. It had rainwater storage tanks and water saving appliances together with high levels of insulation. Its energy performance met the Chancellor’s definition of a zero carbon home. It was as durable as a land supported home and its environmental performance exceeded land construction regulations. It was in every way presented as an alternative to conventional flood plain constructions.
21.	Whilst a houseboat is not necessarily a building he contended that their structure was a permanent building which met the Oxford dictionary classification of a building. 
HMRC’s Submissions
22.	Mr Edwards submitted that whilst there was some difficulty in describing the structure there were mooring fees to be paid and it was a floating device so that it was difficult to avoid the obvious that it was a floating deck structure and as such fell into Item 2 of Group 9 of Schedule 8 of VATA.
23.	The Appellant has constructed a houseboat and a houseboat is not included in the definition of “the construction of a building designed as a dwelling” set out in Section 35(1A) of VATA. This is because a houseboat is not a building within the meaning of that section and therefore the Appellant is not entitled to a refund of VAT pursuant to Section 35 VATA.
24.	The Appellant has in fact constructed a pontoon with a houseboat attached to it. The pontoon is attached to the land by piles driven twelve metres into the ground. The pontoon is therefore the “real property” whilst the dwelling portion of the structure which is merely attached to the pontoon in a manner that allows it to float with the rising tides is not attached to the land such that it forms part of such realty.
25.	Mr Edwards referred to Item 2 of Group 9 of Schedule 8 of VATA and its definition of houseboats. This definition is repeated in HMRC’s Public Notice 701/20 which provides information as to how supplies of caravans and houseboats should be treated for VAT purposes. It defines self-propulsion as “a term that refers to any vessel that is either independently propelled or not independently propelled but could readily be adapted to be capable of self-propulsion for example by installing an engine, propeller or mast. It is unlikely that a vessel such as a barge or a yacht would be regarded as a houseboat for the purposes of VAT because they are unlikely to lend themselves to being readily adapted”.
26.	HMRC listed the reasons for their contentions that the residential portion of the structure was in fact a houseboat as follows:
•	Mains services are routinely connected to houseboats that are moored at a permanent residential site in exactly the same manner as the Appellant’s structure.
•	The dwelling portion of the structure is not fixed to the land but floats on top of the soil hence behaving in the manner of a floating deck structure not a building.
•	The dwelling portion of the structure would be capable of being separated from the fixed pontoon without complete demolition and could be moved to another location
•	The dwelling portions are not readily adaptable for self-propulsion.
•	Houseboats which are kept at a permanent residential mooring attract council tax
•	The planning permission granted by Wandsworth Council expressly states that it is for the creation of two new houseboat moorings and repositioning of an existing mooring involving relocation of an existing pile and installation of two new piles with a new pontoon and access ramp.
•	The Appellant himself referred to the structure as a “residential dwelling/houseboat in the VAT 431 claim form he submitted to them.
•	Invoices from the suppliers IMP Property Development referred to work carried out on the Dunster boat indicating that they considered that they were working on what would be in ordinary parlance be considered to be a boat.
•	The invoice from TMP Group Limited was for the build of a vessel and the contract refers to the build of a houseboat.
27.	HMRC cited the decision in the case of Dr J Parkinson v The Commissioners for Her Majesty’s Revenue and Customs in which the Tribunal stated:
	The dictionary definitions do not we think support the case for saying that Dr Parkinson’s houseboat is a building. The shorter Oxford dictionary defines building as a thing which is built, a structure, an edifice, a permanent fixed thing built for occupation, as a house, school, factory, church etc. The New Oxford dictionary of English definition of building contains the words “a structure with roof and walls such as a house, school or factory”. To call a houseboat a house (the closest to the examples in the two definitions) would we think be misleading. The appropriate and in our view the only proper word in the English language to describe Dr Parkinson’s houseboat is houseboat.
28.	The Tribunal went on to say that as houseboats are dealt with in an entirely separate group of Schedule 8 of VATA to the group that deals with buildings the intention of the draughtsperson can not have been that houseboats could be considered buildings for the purposes of Section 35 of VATA:
	This conclusion is we think in line with the scheme of Schedule 8 of the VAT Act. In the first place the draughtsman has chosen to deal with houseboats as a separate and discrete class of habitations. Item 2 of Group 9 exempts supplies of “houseboats being boats or other floating decked structures designed or adapted for use as places of habitation” Why deal with them specifically if they are already in Group 5 of Schedule 8? The answer must be that it never occurred to the framers of Group 5 that a houseboat was a building. Moreover the words of Notes (16) and (18) indicate that the word building in Group 5 connotes a structure attached to the land. Look at Note (18) which states that “a building only ceases to be a building when (a) demolished completely to ground level or (b) the part remaining above ground level consists of no more than a single façade.
29.	HMRC also relied on the Tribunal decision in John Dennis Winser in which it was noted:
	In his correspondence the Appellant places much emphasis on the fact that on creation of a residential mooring a new dwelling comes about and that the work carried out in connecting the houseboat to the water mains is related to that event – indeed in planning terms is a prerequisite of that event. However the relief afforded by zero rating is explicit and the provisions setting out that relief must be applied in their specific terms. The coming into existence of a new dwelling place does not of itself give rise to zero rating relief – it does so only in the specific and limited circumstances of the construction of a building designed as a dwelling. The Appellant may view this as discriminatory but Parliament has chosen to limit the scope of zero rating relief in this manner and anyone whose circumstances for any reason fall outside the boundaries of the relief may have a sense of grievance but the law is nevertheless clear and must be applied. As was mentioned in the Dr John Parkinson case Parliament has chosen to extend zero rating relief to houseboats in a different manner.
	We agree with the decision in the Dr John Parkinson case “a houseboat is not a building”.
30.	Mr Edwards submitted that the Appellant appeared to have concentrated on the fact that the structure was a dwelling rather than whether the structure was in fact a building within the narrow terms of that word’s ordinary meaning. There was no doubt that it was a dwelling but that did not make it a building constructed on land. Moveability is not part of the test but floating is and there was no doubt that the structure was a floating deck structure as defined in  Item 2 of Group 9 of Schedule 8 of VATA.
Findings
31.	The Tribunal found that the Appellant’s structure was admirable in every way. It had been built for all the right reasons and with the very best of intentions. He embarked on building his structure on the strength of advice from the VAT helpline that a refund of VAT would be available. 
32.	It was impossible however to ignore the wording of Item 2 of Group 9 of Schedule 8 of VATA and to avoid finding that the structure was a “floating deck structure” The Appellant argued persuasively that a floating structure should not be classified as a boat but the item refers to “boats or other floating structures”.
33.	Wandsworth Council’s planning permission describes the development as “the creation of two new houseboat moorings and repositioning of an existing mooring involving relocation of an existing pile and installation of two new piles with a new pontoon and access ramp”.
34.	The Appellant correctly stated that some of the cases cited by HMRC referred to the conversion of boats but nevertheless although the cases of Rachel Jacobs, Dr John Parkinson, Elitestone and Pollock refer to conversions in each of these cases it was held that a houseboat could not be considered a building.
35.	The Tribunal has carefully re-examined the decisions in the cases cited and in particular as they relate to their findings that a houseboat could not be considered a building as defined in the dictionaries. Regrettably we were unable to find anything which would distinguish the Appellant’s structure in a way that might allow it to be considered a building.
36.	The Appellant argued most persuasively that the structure was a dwelling and we agree with this. However we concur with HMRC that this is not the question. Rather it is whether or not the structure is a building. In Dr John Parkinson the Tribunal agreed that a houseboat was not a building.
37.	The completion letter from TMP Group Limited, the boat builder, refers to, inter alia, “insulate underside of lower deck floor”, “provide main service openings in the hull”  and “provide 4 x double mooring bollards” all of which inescapably appear to refer to work on a boat.
38.	The Appellant himself in his application for a VAT refund referred to a “new build houseboat”.
39.	Overall in examining all the documents provided we find that throughout the structure is largely referred to as a boat.
40.	In a letter from the Appellant to HMRC dated 18 March 2009 it is stated “I confirm that the houseboat is designed solely as a place of permanent habitation and has no means (and is not capable of being readily adapted) of self propulsion”.
41.	Notice 701/20 at 7.1 states that “a houseboat is designed for the purposes of  VAT as being a floating decked structure which is designed or adapted for use solely as a place of permanent habitation and which does not have the means of, and which is not capable of being readily adapted for, self propulsion”. This conclusively appears to describe the Appellant’s structure and is as he himself described it in his letter to HMRC quoted at 39 above.
42.	We adopt the Tribunal’s reasoning in the case of Dr John Parkinson in which it was stated that:
“In the first place the draughtsman has chosen to deal with houseboats as a separate and discrete class of habitations. Item 2 of Group 9 exempts supplies of “houseboats being boats or other floating decked structures designed or adapted for use as places of habitation” Why deal with them specifically if they are already in Group 5 of Schedule 8? The answer must be that it never occurred to the framers of Group 5 that a houseboat was a building. Moreover the words of Notes (16) and (18) indicate that the word building in Group 5 connotes a structure attached to the land.”
43.  The structure is attached to a pontoon which is attached to the land. We agree with HMRC’s contention that the structure is therefore not attached to the land in such a way that it forms part of the realty.
43.	We sympathise with the Appellant as we realise that having been advised by the VAT helpline to use the DIY Builders Scheme to reclaim the VAT his arguments were based largely on the fact that the structure was a dwelling. Nevertheless in the documents provided he constantly referred to the structure as a houseboat and stated “that the boat was construction of a new dwelling”. 
44.	Misdirection by the National Helpline however is not a matter that can be appealed to a tribunal but rather to the HMRC Complaints Central Clearing Team Manager.
45.	We appreciate that if the houseboat had been purchased as a completed item it would have been zero rated and it does seem unfair that having been constructed from scratch as a self build VAT is payable on all the material costs but we cannot avoid the wording of Item 2 of Group 9 of Schedule 8 of VATA and thus we find that the structure is a houseboat or floating deck structure and not a building.
46.	We can do no more than repeat the Tribunal’s concluding statement in the case of Dr John Parkinson “We are against the Appellant despite the careful and attractive argument that he presented. We should add that he has every right to feel aggrieved. The Act discriminates against DIY houseboat builders.”
Decision
47.	The appeal is dismissed.
48.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

MRS S.M.G.RADFORD

TRIBUNAL JUDGE

RELEASE DATE: 30 September 2010