[2012] UKFTT 357 (TC)
TC02043
Appeal numbers
TC/2011/04280
VALUE ADDED TAX — do-it-yourself builders’ scheme — VATA s 35,
Sch 8 Gp 5 Note (2) — “live-work” unit — whether conditions for zero rating
satisfied — no — appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
ADRIAN RICHARD RAILTON
HOLDEN
JANE
ELISABETH HOLDEN Appellants
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
Tribunal: Judge Colin Bishopp
Mr
Richard Law FCA CTA
Sitting in public in London on 25 May 2012
Mr Adrian Holden for the
Appellants
Mrs Rita Pavely for the
Respondents
© CROWN COPYRIGHT 2012
DECISION
1.
This is an appeal against the Commissioners’ refusal to pay to the
appellants the VAT, amounting to £5,904.67, they incurred in the construction
of a single-storey flat. The claim was made in accordance with what is
generally known as the “do-it-yourself builders’ scheme”, which is governed by
s 35 of the Value Added Tax Act 1994. The effect of the section is to zero-rate
certain works, subject to conditions, and to put those undertaking construction
work themselves on the same footing as a commercial builder. The Commissioners’
refusal is based upon their view that one of the relevant conditions is not
satisfied, and that no refund is therefore due.
2.
The property with which we are concerned, situated in Highbridge Road,
Sutton Coldfield, consisted of a studio and workshop (used for professional
photography) adjoining an office and garage. The office and garage were
demolished and in their place the flat was constructed. It abuts, but is not
tied into, the studio and workshop, and there is no internal means of access
from the one to the other: it is necessary instead to use a courtyard they
share. At all material times the entire property has been in the appellants’
ownership, and we understand it is they who, at the time of the work, used the
studio and workshop for the purposes of their business, and who lived in the
flat. The property, as so developed, is what is known as a “live-work unit”.
3.
The work was the subject of planning permission granted by the local
planning authority. One of the conditions imposed by the permission reads:
“The flat hereby permitted shall be occupied only in
conjunction with the operation of the photographic studio from 240a Highbridge Road.
REASON: In order to safeguard the amenities of occupiers of
premises/dwellings in the vicinity.”
4.
Section 35 of the 1994 Act sets out the conditions which must be
satisfied if a person who has incurred VAT on the purchase of materials used in
the construction of certain buildings, including dwellings, is to be eligible
for a refund of that VAT. There is no dispute that in this case most of the
conditions are satisfied, and it is unnecessary to set out the section in full.
The provision which identifies the types of work which come within the section is
sub-s (1A)(a), which includes “the construction of a building designed as a
dwelling or number of dwellings”. The appellants say that the flat falls within
that description, which at first sight it plainly does.
5.
The Commissioners, however, rely on sub-s (4), which provides that “The
notes to Group 5 of Schedule 8 shall apply for construing this section as they
apply for construing that Group …”. It is note (2) to that Group which is of
critical importance here. It provides that
“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.”
6.
The Commissioners accept that conditions (a), (b) and (d) are met, but
contend that (c) is not, because of the condition imposed by the planning
permission which we have set out above. Mrs Rita Pavely, who appeared for the
Commissioners before us, referred us to the decision of the VAT and Duties
Tribunal (the predecessor of this tribunal) in Paul Cussins v Revenue and
Customs Commissioners (2008, VAT Decision 20541) in which it said, in another
case in which a condition of the planning permission was that “[t]he
residential accommodation hereby permitted shall only be occupied in conjunction
with the commercial use hereby approved” that
“We find that the planning permission in
its wording restricts its separate use or disposal and the provisions of Note
(2)(c) are not satisfied.”
7.
Although the facts of Cussins differed in detail from this case,
Mrs Pavely said, the principle was the same. Whatever the reason behind it, the
condition of the planning permission clearly prohibited separate occupation of
the residential accommodation and the business premises, and since occupation
and use of accommodation amount to the same thing, it followed that the
appellants could not comply with condition (c). Thus the appellants had not
constructed a dwelling within the meaning of the statutory provisions, and no
refund was due.
8.
Mr Aidan Holden, who represented himself and his wife at the hearing, sought
to distinguish Cussins because, he said, that was a case in which the
two properties—residential and commercial—had been brought together to form a
single unit, whereas here the property had always been in single ownership. He
relied, too, on the Commissioners’ own published guidance, in Public Notice
708. At para 15.4 the notice deals with live-work units:
“A live-work unit is a property that combines, within a
single unit, a dwelling and commercial or industrial working space as a
requirement or condition of planning permission.
Zero-rating or reduced-rating is only available to the
extent that the unit comprises the dwelling, provided that the dwelling meets
the normal conditions outlined in paragraphs 14.2 to 14.5 [which reproduce note
(2)].
Dwellings that contain a home office are not live-work units
and no apportionment is needed.”
9.
If the Commissioners were right, he said, no live-work unit could ever
qualify since, by definition, a live-work unit is one in which the living and
working parts are to be occupied as a single unit. The legislation should be
construed pragmatically so that its obvious purpose, of zero-rating new
residential accommodation, as this was, was achieved.
10.
Mr Holden presented his arguments with great skill, and we can see their
merit: it may well be that, in practice, few live-work units can qualify for
zero-rating and that this is not the result Parliament intended. We have,
however, to construe and apply the legislation as it stands. We do not see that
the factual difference between Cussins and this case is material; the
planning conditions were essentially the same, in requiring the residential and
business accommodation in issue to be in common occupation. Disposal of the residential
part without the commercial part, or vice versa, would be unlawful, and
the development therefore does not comply with condition (c). It necessarily
follows that the Commissioners were right to refuse a refund.
11.
The appeal is accordingly dismissed.
12.
This document contains full 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 45
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.
Colin Bishopp
Tribunal Judge
Release date 29 May 2012
