Iliffe & Anor (t/a Otterton Post Office) v Customs & Excise [2004] UKVAT V18444 (14 January 2004)

ASSESSMENT – Over-claimed input tax – Work done to a listed building – Whether alteration or repair – Part of work related to private house – Whether VAT reasonable 

LEGAL COSTS – Appellants ordered by court to pay building societies costs including VAT – Whether that VAT recoverable in hands of the Appellants – Civil Procedure Rules 1998 considered – Appeal dismissed
  
LONDON TRIBUNAL CENTRE

	MARK ILIFFE & JANE ILIFFE	Appellant
T/A OTTERTON POST OFFICE

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MISS J C GORT  (Chairman)
						MISS SHEILA WONG CHONG FRICS

Sitting in public in Birmingham on 4 July 2003

The Appellant appeared in person

Miss Nicola Shaw, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION
1.	The disputed decisions are:

(a)	A decision by the Commissioners contained in a notice of assessment dated 12 March 1999 in respect of the periods ended June 1996 and September 1996 that the Appellants had over-claimed input tax in the amount of £4,421, with interest on that amount in the sum of £560.11 and 

(b)	A decision of the Commissioners contained in a letter dated 9 March 1999 that the Appellants have over-claimed input tax for the periods ended July 1998 and September 1998 in the sum of £6,414.88.

2.	It was the Commissioners’ view that the Appellants had not produced the relevant documents to substantiate their claims to input tax in respect of the 1996 claim and in respect of the 1998 claim input tax was not properly claimable by them.

The legislation

3.	The Value Added Tax 1994 provides at Group 6 Schedule 8:

“Item No.
…
2	The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.
…

NOTES

…

(6)	‘Approved alteration’ means –

…

(c)	in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of –

(i)	Part 1 of the Planning (Listed Buildings & Conservation Areas) Act 1990 
…

and for which …  consent has been obtained under any provision of that Part,

but does not include any works of repair or maintenance, or any incidental alteration to the fabric of a building which result in the carrying out of  repairs, or maintenance work.”

Section 24 of the VAT Act 1994 provides:

“24.	Input tax and output tax

(1)	Subject to the following provisions of this section, ‘input tax’, in relation to a taxable person, means the following tax, that is to say –

(a)	VAT on the supply to him of any goods or services 
…

being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.”

Group 5 of Schedule 9 of the Value Added Tax Act 1994 provides for the zero-rating of any security for money or any note or order for the payment of money.

The Civil Procedure Rules 1998 under the Practice Direction Part 43 provide at 5.3 as follows:

“Entitlement to VAT on costs 

5.3	VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax.  …

5.4	The receiving party has responsibility for showing that VAT is claimed only when the receiving party is unable to recover the VAT or a proportional of as input tax.”

The facts

4.	The Appellants are husband and wife and ran a sub-post office and general store at Otterton Post Office, Budleigh Salterton, Devon, as a partnership.  They were registered for VAT with effect from 8 April 1992. They deregistered on 11 September 1998.  

5.	Mr Iliffe gave evidence to the Tribunal on his own behalf.  Mrs Argyle and Mr G C Couch, a senior officer with Customs and Excise, gave evidence on behalf of the Respondents.  Mr Couch had been the reviewing officer in the case.

6.	The Post Office and stores were originally an extension of a listed building in which the Appellants lived.  In the curtilage of the building there was a bungalow.  The Appellants decided to incorporate the building originally used for the Post Office as part of their house, and to site the Post Office in the bungalow. Accordingly a considerable amount of work was done to effect this.  The Appellants had claimed input tax in respect of the work done.

7.	The Appellants employed an architect to draw up plans for the conversion, we did not see the plans, nor did we see any documentary evidence that the building was listed.  However, it was Mr Iliffe’s oral evidence that the building was so listed, and the Respondents accepted that this was the case.  We were told that listed building consent had been obtained for the work, but again we did not see any documentary evidence of this.  

8.	Part of the work which was done at the Post Office was re-thatching of both the private house area and the original post office.  Whilst the private house was originally thatched, the Post Office roof had been tiled, and the Appellants had had it thatched.  There are two invoices in respect of that work from a Mr M F Turbitt.  One is dated 30 June 1996 and the other is dated 2 October 1996.  Both invoices carry an amount in respect of VAT.  The invoice dated 20 June 1996 is receipted by Mr Turbitt on 3 July 1996.

9.	The only other document relevant to the alterations to the property which was produced to the Tribunal is an invoice dated 24 June 1998 from a company called Scillonian Property Maintenance.  That invoice similarly carries an amount for VAT and is also receipted.  

10.	The Tribunal has seen photographs of the works in progress.  In addition to the above invoices the Appellants had also produced to the Respondents a value added tax receipt in the sum of £199.95 from the National Federation of Retail Newsagents.  This was dated 25 February 1999.

11.	The Appellants had taken out a mortgage on the whole property with the TSB Bank Plc. This was described by Mr Iliffe as being partly a mortgage and partly a business loan secured on the property. The business loan itself was paid off quite early.  In 1993 he had wanted to convert the mortgage from a fixed rate to a standard rate. The Bank wanted to charge the Appellants £3,000 to do that. Mr Iliffe challenged their right to impose this charge. In the meantime the bank had been charging interest at the new lower rate which the Appellants paid. The Appellants however would not pay the £3,000 charge sought in order to convert the mortgage.  This culminated in the bank taking possession proceedings. The court upheld the bank’s claim for the difference between the old rate of interest and the new rate which they had been charging in anticipation of the Appellants paying the £3,000 charge.  The Appellants were ordered to pay the bank indemnity costs.  The Appellants had produced to the Commissioners the various bills sent by the bank’s solicitors to the bank in respect of the proceedings, these carried value added tax.  The Appellants had sought to reclaim as input tax the tax on the bills made out to the TSB.

12.	At the hearing of the appeal the Appellants produced the County Court bill of costs.  This stated:  “Plaintiff’s costs to be taxed on the indemnity basis and added to the Plaintiff’s security pursuant to the Order hearing dated 20 August 1997.  Scale 2.”  These show a total amount of  value added tax in the sum of £1,982.34.  

13.	On 26 February 1999 Mr Iliffe was sentenced to five years in prison for embezzlement of approximately £750,000 from the Post Office, and he was made criminally bankrupt.  In the course of the investigation the Police seized all the Appellants’ documents relating to their business at the Post Office.  The consequence of this was that it was difficult for the Appellants to produce the relevant invoices to substantiate their claims for input tax at the relevant time.  Subsequently the Post Office did return the majority of the documents but some were missing.  

14.	Part of the work which was done involved steelwork and the invoices relating to this work were only produced after the assessment had been issued.  These invoices are from a company called North Star Engineering and are dated between 10 April 1996 and 10 September 1996.  There are five invoices in total all of which bear a sum relating to VAT.

15.	After Mr Iliffe was charged with fraud, and as a consequence of that charge, on 22 January 1999 Mrs V M Argyle, an officer of Customs and Excise, paid a visit to the Appellants’ premises.  The shop itself had closed down in September 1998.  By the time of the visit the Appellants’ records had been removed by the Police.  

16.	There had been an earlier visit on behalf of the Commissioners by a Mrs Hoepelman in 1995.  She had validated earlier claims to input tax in respect of the building works.

The Appellants’ case

17.	In the notice of appeal the Appellants refer principally to the impossibility of producing documents.  They also appear to be relying on the fact that Mrs Hoepelman in her previous visit had seen that the building work was being done and had allowed an earlier claim in respect of the work.  At the time of the appeal Mr Iliffe was in prison and it was said that Mrs Iliffe had no part in the running of the business.

18.	At the hearing of the appeal Mr Iliffe produced written submissions in which he referred to the fact that documents for the periods 06/96 and 09/96 had not been returned by either the Police or Post Office Counters Ltd.  

19.	The basis of his appeal in relation to the building works was that the whole of the value added tax should be recoverable, not just the part relating to the business, because the building was Grade 2 listed and therefore should be zero-rated for value added tax purposes.

20.	It was submitted that the thatching which related to the entire main building was a complete re-roofing which therefore constituted an alteration to the fabric of the building, similarly the work carried out by Scillonian Property Maintenance.

21.	The invoices from North Star Engineering had only been obtained by his wife writing to the company concerned.  

22.	With regard to legal costs, these were matters which did relate to the business and in respect of which they had paid value added tax.  

The Respondents’ case

23.	The Respondents had originally disallowed the Appellants’ claims for input tax on the basis that invoices to substantiate the claims were not available.  Subsequently when by a letter dated 4 August 2000 the Appellants sent the Commissioners copies of the two invoices from Mr Turbitt and an invoice from Scillonian Property Maintenance, these were disallowed on the basis that not all the costs claimed in respect of the thatching were allowable as part of the costs related to thatching the Appellants’ own house.  The Appellants at that time made no attempt to apportion the thatching and building work costs.  

24.	At the hearing of the appeal the Respondents accepted, subject to the relevant evidence being provided, that the building was a listed building.  It was therefore submitted by Miss Shaw that it was not open to the Appellants to claim any of the value added tax paid out in respect of the building works because no value added tax should have been charged by the suppliers.  Whether the works related to the business itself  or to the Appellants’ own home became irrelevant.  

25.	The Tribunal’s attention was drawn to the distinction between works of alteration and works of repair or maintenance of a listed building.  With regard to the thatching of the house, it was submitted that as that was re-thatching it amounted to a repair or maintenance.  With regard to the shop area, that amounted to an alteration, as did all the works relating to the shop area.  It was also the case with regard to the thatching of the house, that the Appellants would not be able to reclaim the value added tax on that work, since it did not relate to the business, and with regard to the work on the shop area, since that did amount to an alteration, it was properly zero-rated under Group 6 Schedule 8 of the Value Added Tax Act 1994 and was also therefore not reclaimable.

26.	Furthermore, of the invoices produced, only Mr Turbitt’s invoice of 30 June 1996 fell within the period in question.  With regard to his invoice dated 2 October 1996, there was no evidence to show that that had not in fact been claimed by the Appellant in the period 12/96.

27.	In the course of the hearing Mr Couch had seen the Scillonian Property invoice and had agreed to accept the value added tax shown on that as properly reclaimable as an input.  Miss Shaw confirmed this in the course of her submissions.  The Commissioners were also prepared to allow invoice No.4319 from North Star.  

28.	Credit was allowed to the Appellants in respect of the invoice produced from the Newsagents, the Appellants’ evidence that that document was post-dated being accepted.  

29.	With regard to the legal costs, it was submitted that none were recoverable as input tax by the Appellants.  The Appellants had not been the recipients of those legal services, and by sections 24 and 26 of the Value Added Tax Act, a supply had to be made to the taxable person.

30.	Furthermore, by Group 5 Schedule 9 of the Value Added Tax Act, a mortgage is an exempt supply and therefore the TSB would be unable to reclaim the VAT they had expended on their legal expenses.  It was therefore proper for them, in accordance with section 5.3 of Practice Direction relating to the Civil Procedure Rules 1998 (Section 5.4) to require the Appellants to pay the VAT, which otherwise they would not be able to do.  The Tribunal was referred to the case of Turner (T/A Turner Agricultural) v Customs and Excise Commissioners [1992] STC 621 in which it was held that input tax in relation to a taxable person means tax on the supply to that person of any goods or services and value added tax charged on costs incurred by defendants in actions brought by the taxpayer could not be said to be input tax falling within the definition contained in section 14 of the Value Added Tax Act 1983 (now section 24 of the 1994 Act). 

31.	It was submitted that if the Tribunal did not accept this argument, in any event the amount of tax had to be apportioned as the mortgage related in part to the Appellants’ domestic accommodation.

Reasons for decision

32.	In this case, as it had been accepted, subject to the production of the relevant documents, that all the buildings in question are Grade 2 listed buildings, it follows that the work done on those buildings which constitute alterations are properly zero-rated for value added tax.  Such work as is only a repair is standard-rated for value added tax.  It is difficult, in circumstances where we have not seen the plans or the listed building consent which was granted, to be certain as to which works did constitute an alteration and as to which are properly considered repairs.  However, we think it is without doubt that the re-thatching of the original house can only be considered a repair.  We also find that the re-thatching of the original house is not properly reclaimable by the Appellants as it did not relate to business.  

33.	With regard to the work, including the re-roofing by thatching of the Post Office, this work from the photographs produced is substantial, and as such appears to us on the balance of probabilities to be an alteration. Whilst we have seen no photographs of the internal work done to convert the bungalow to a post office, again on balance this would appear to have been an alteration.  In any event no specific invoices were produced relating to that work beyond the North Star invoices.

34.	In the circumstances none of the invoices pertaining to the building work, other than the re-thatching of the house, should have contained an amount for value added tax.  It is unfortunate for the Appellants that the architect or the builders were not alive to the value added tax position at the time. We understand that the Appellants are now unable to locate the Scillonian property company.

35.	With regard to the value added tax claimed in respect of the costs in the mortgage action, the Appellants are unable to reclaim that sum for the reasons put forward by Miss Shaw.  

36.	In all the circumstances this appeal must be dismissed.

37.	No order for costs.

MISS J C GORT
CHAIRMAN

RELEASED:

LON/99/1251