19064

ZERO-RATING – protected building – alteration to create living accommodation in a listed oast house separate from the main house – planning consent requires the oast to be used on an ancillary basis to the main house and not to be used as a separate dwelling – zero-rating prevented by Note (2)(c) of Group 6

LONDON TRIBUNAL CENTRE

	NICHOLAS PAUL SMITH 	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					MICHAEL SILBERT FRICS

Sitting in public in London on 15 April 2005

The Appellant in person

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

© CROWN COPYRIGHT 2005

DECISION

1.	Mr Nicholas Smith appeals against a decision of the Commissioners that certain construction works are not zero-rated under the protected buildings provisions.  Mr Smith appeared in person; the Commissioners were represented by Miss Nicola Shaw.
2.	The facts are not in dispute.  We find:
(1)	The Appellant and his wife own Scrag Oak, Wadhurst, East Sussex.  The main house and other buildings, including an oast house (“the Oast”) in a separate unconnected building, are all listed buildings.
(2)	Planning permission was obtained for the conversion of the Oast into additional living accommodation comprising three bedrooms, a bathroom, a WC, a kitchen, a drawing room and store rooms.  
(3)	It was a condition of the planning permission that the Oast be used on an “ancillary basis to the main dwelling and shall not be occupied or let independently, or used as a separate dwelling.”
(4)	The Appellant and his wife covenanted in an Agreement under s 106 of the Town and Country Planning Act 1990: 
“1 Not to sever the legal or equitable ownership of the Annexe [the Oast] or any part thereof from the remainder of the property by way of gift lease sale or other transaction not to create any legal or equitable interest in the Annexe or any part thereof separate from the remainder of the Property
2.  Not to use or permit to be used the Annexe or any part thereof for any purpose whatsoever other than for the purpose of occupation as additional living accommodation ancillary to the Main Dwelling.”
3.	Item 2 of Group 6 of Schedule 8 to the VAT Act 1994 zero-rates:
“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 a consultant or in a supervisory capacity.”
Note (1) provides:
“‘protected building’ means a building which is designed to remain as or become a dwelling or number of dwellings (as defined in Note (2) below)…and which in either case, is—
(a) a listed building, within the meaning of—
(i) the Planning (Listed Buildings and Conservation Areas) Act 1990…
Note (2) provides:
“A building is designed to remain as or become a dwelling or 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 terms of any covenant, statutory planning consent or similar provisions…”.
4.	Mr Smith contends that 
(1)	The building referred to in Note (1) is the plural buildings comprising the house and the Oast 
(2)	It is not in dispute that both buildings are listed.
(3)	Since the planning consent required that the Oast be used on an ancillary basis to the main dwelling and not be occupied or let independently, or used as a separate dwelling, “the dwelling” consists of both buildings.
(4)	The separate use and disposal of the dwelling comprising both buildings is not prohibited by the terms of the planning consent and so Note 2 (and in particular Note 2(c)) is satisfied.
(5)	Accordingly zero-rating applies.
5.	Miss Shaw, for the Commissioners, contends that:
(1)	The building referred to in Note (1) is the Oast which is the building being altered.
(2)	It is not in dispute that the Oast is listed 
(3)	“The dwelling” is the Oast.
(4)	The separate use and disposal of the Oast is prohibited by the terms of the planning consent and so Note (2)(c) is not satisfied.
(5)	Accordingly zero-rating does not apply
6.	In Customs and Excise Comrs v Zielinski Baker & Partners Ltd [2004] STC 456, the question arose whether the alteration to an unlisted outbuilding adjoining the listed house qualified for zero-rating.  The case turned on identifying the protected building in item 2.  In that case if it were the house (as the majority in the Court of Appeal considered) it remained as a dwelling and so zero-rating applied; if it were the outbuilding, since it was not itself listed, zero-rating did not apply (as the majority held in the House of Lords).  The difference here is that the Appellant contends that the building here is the plural buildings comprising the main house and the Oast.  He derives support from Lord Nicholls’ dissenting speech at [8]:
“The key lies in recognising that the reference to ‘a building’ in the singular in the definition of protected building in note (1) (‘“protected building” means a building’) includes the plural ‘buildings’ where appropriate.  If the accommodation comprises self-contained living accommodation it matters not that, structurally, part of it is located in one building and part in another, so long as both buildings fall within the statutory definition of a listed building.”
7.	The majority in the House of Lords held that the building referred to in Note (1) was the outbuilding and not the house plus the outbuilding.  Lord Hoffmann said at [9] 
“The actual outbuilding to which the alterations in this case were made was not designed to remain as or become a dwelling house.”  
Lord Hope said at [18] 
“The first step is to identify the building in connection with which the supply is made.  There is no room for doubt as to how one must go about this exercise.  It is the building which is being reconstructed or altered…that attracts the provisions for zero-rating in Group 6.”  
Lord Walker said at [40]:
“In this case the key part of the text is the definition of ‘protected building’ in note (1).  So far as relevant, it can be divided into three integers.  A ‘protected building’ means (1) a building (2) which is designed to remain as or become a dwelling (as defined in note (2)) after the alteration (3) and which is a listed building within the meaning of the 1990 Act.  On the provisional assumption that the courts below were right on the s 1(5) point, a ‘listed building’ in the third integer must be taken as including, as part of the listed building, a separate structure (built before 1 July 1948) within the curtilage of a listed building.  But it is accepted that the outbuilding at The Mere was not designed to become a dwelling after the alteration.  So the extended definition (or statutory fiction) in s 1(5)(b) of the 1990 Act cannot assist the taxpayers unless it is to be reflected back onto the first integer (‘a building’) so as to extend (and extend in an unusual and awkward fashion) the natural meaning of that simple expression.
I can see no good reason for such an unnatural construction.”
It is implicit from the statement that the outbuilding was not designed to become a dwelling, that it was the building in Note (1) unless one could rely in s 1(5) to say that the building was the house and the outbuilding within its curtilage, which he did not consider that one could, but without expressing a final view on the point.
Lord Brown said at [61]:
“To my mind, however, there can be no escaping the plain fact that the actual building altered here was the outbuilding and not the house.  True it is that the requirement for these works to be authorised rested upon the fact that, under the extended definition of ‘listed building’ in s 1(5) of the 1990 Act, a listed building was being altered.  That, however, appears to me an insufficient basis for ignoring the simple physical reality, namely that here it was the outbuilding itself which was being altered.  It is to the actual work of alteration that item 2 is directed.”
8.	Accordingly all their Lordships except Lord Nicholls considered that the building in Note (1) was the outbuilding being altered, and not the plural buildings comprising the house and the outbuilding.  We consider that the same approach applies here so that the building in Note (1) is the Oast.  From that, Miss Shaw’s argument follows and zero-rating is not applicable.  Because the three conditions in Note 2 must be satisfied “in relation to each dwelling,” Mr Smith’s argument also requires that both buildings comprise “the dwelling.”  We see the force in this, given the planning consent prohibiting the use of the Oast as a separate dwelling, but it seems to us that this goes to its use as a dwelling and not to whether the Oast is a dwelling.  We consider it is on the ordinary meaning of the term since it contains all the facilities required to be able to live there.  Accordingly we do not consider that Mr Smith can succeed on this argument either.
9.	We can sympathise with the Appellant in thinking that his case should succeed as being much stronger than Zielinski Baker because both buildings are listed but we do not consider that it is possible to bring this case within the wording of Group 6.
10.	Accordingly we dismiss the appeal.  Since Mr and Mrs Smith own the property and both of them entered into the s 106 Agreement as owners it may be that she should have be joined as a party to this appeal.  If this is necessary, we direct that Mrs Jennifer Claire Smith be joined as a party.  As the Commissioners for Revenue and Customs Act 2005 came into force after the hearing and before our decision we have substituted the new Commissioners as the Respondents.

JOHN F AVERY JONES

CHAIRMAN
RELEASE DATE: 5 May 2005

LON/03/0681