20352

VAT – DIY Builders and Converters Scheme : section 35 VATA – residential conversion – building designed as a dwelling : Note (2) Group 5, Schedule 8 VATA – was “the separate use, or disposal” prohibited – planning consent imposing condition that conversion be used only for purposes ancillary to the main house – held: separate disposal was not prohibited but separate use was – thus the works were not a residential conversion – appeal dismissed
LONDON TRIBUNAL CENTRE

	MARTIN JAMES GIBLIN	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	CHARLES HELLIER (Chairman)
						RUTH WATTS DAVIES

Sitting in public in London on 16 July 2007

Mr Giblin in person

Miss J Connors, counsel, instructed by the Acting Solicitor for HMRC the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	Mr Giblin appeals against the Respondents’ rejection of his claim for the reimbursement of £6,689.67 under the DIY Builders and Converters refund scheme.

2.	Section 35(1) VATA 1994 provides that the Commissioners shall refund to a person VAT chargeable on the supply, acquisition or importation of goods used for the purpose of certain works.  Section 35(1C) provides for a similar refund for the VAT chargeable on the work done by a contractor on a “residential conversion”.

3.	Mr Giblin undertook some building works at Gawcott Hill Farm. He converted some farm buildings into a granny annexe.  He incurred expenses on which VAT was charged.  He made a claim for the VAT.  He is entitled to the refund of that VAT if the works which he conducted fall within the conditions in section 35.

4.	Section 35 contains a number of conditions but the issue in this appeal is whether the granny annexe was a “building designed as a dwelling” within Note (2) Group 5 Schedule 8 VATA 1994.  That is because section 35(1A) specifies the works to which section 35(1) applies as:-

“(a)  the construction of a building designed as a dwelling or a number of dwellings;

(b)  [irrelevant for present purposes:] the construction of a building for use solely for a relevant residential purpose or a relevant charitable purpose; and

(c)  a residential conversion”.

A “residential conversion” is defined by section 35(1D) to be works which consist in the conversion of a non residential building (or part) into “a building designed as a dwelling or number of dwellings” (or certain other buildings irrelevant for present purposes).

5.	By section 35(4) the Notes to Group 5 of schedule 8 are to apply in construing section 35 as they apply for the purposes of construing Group 5 (with an exception which is not presently relevant).  Note (2) of Group 5 provides a definition of ‘a building designed as a dwelling or a number of dwellings” in the following terms:-

“(2)  A building is designed as a dwelling or a number of dwellings if 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 has been carried out in accordance with that consent.”

6.	It is common ground that conditions (a), (b) and (d) of Note 2 are satisfied in relation to the granny annexe.  Accordingly if condition (c) is satisfied, the granny annexe will be a building designed as a dwelling and the works of conversion will be a residential conversion within section 35(1)(c), and, since there is no dispute about the other conditions in section 35, Mr Gilbin would be entitled to the refund of the VAT he claims.

7.	The only question for us was therefore whether the “separate use, or disposed of the dwelling” was prohibited in one of the ways described in subparagraph (c).

8.	Mr Gilbin obtained planning permission for the granny annexe.  His first application was made for a granny annexe, stable and hay store but later he changed his mind and made application for a granny annexe and garaging/domestic store.  Planning permission was given each time, but each time it was given subject to conditions.  Each time those conditions included the condition that the development:-

“shall not be used for any purposes other than as ancillary to the residential accommodation presently on the site as a single dwelling unit and not as a separate unit of residential accommodation in its own right.”

The reason stated for this condition in the first planning consent was because the local authority “would not accept an additional dwelling on their site due to the open countryside location”; in the second consent the reason given was that a self continued dwelling would be contrary to particular policies in the Rural Areas Local Plan.

HMRC’s Arguments

9.	Miss Connors says that the requirements of paragraphs (a) to (d) of Note (2) are cumulative : each must be satisfied.  We agree : the use of the word “and” at the end of paragraph (c) makes this clear.

10.	She then says that:

(i)  the effect of the condition imposed in each of the planning permissions for the granny annexe is that:-

	(a)  the separate use of the granny annexe is prohibited; and

	(b)  the separate disposal of the granny annexe is prohibited;

(ii)  properly construed the condition in paragraph (c) of Note (2) is failed if either the separate use of the granny annexe or the separate disposal of it are prohibited;

(iii)  thus the condition in paragraph (c) is clearly not satisfied.

11.	In support of the first of these propositions Miss Connors cites the tribunal’s decision in Gill Cartagena v HMRC (VAT Decision 19454).  In that case the planning consent for the development continued the condition that the development “shall not be used except for providing ancillary accommodation in association with the main use of [the house] as a dwelling house.”  The tribunal said:

“This restriction is in our view a prohibition on the separate use of [the development].  It also amounts in substance to a restriction on the open-market disposal of [the development] … [it] cannot in any realistic sense be disposed of freely or separately from the use of [the house] as the main dwelling unit.  In our view the suggested dichotomy between a prohibition as separate use and a prohibition on separate disposal is on the facts of the instant case unrealistic and we do not accept it.”

The tribunal went on to find that if either separate use or separate disposal were prohibited then condition (c) would not be satisfied.

12.	Miss Connors says that the test in paragraph (c) must be satisfied at the date of the planning consent.  If it is not then satisfied but could subsequently be satisfied that is not good enough.  She cites the tribunal’s decision in Harris v HMRC (VAT Decision 18822) where the tribunal took the view that the phrase “designed as a dwelling” (our emphasis) indicated that the conditions needed to be satisfied at the “time of the design of the building (that is at the time of the planning consent) and not later.”  As a result Miss Connors says that any possibility that the condition might later be lifted is irrelevant.

Mr Giblin’s arguments on Note (2)

13.	Mr Giblin made a number of points about his dealings with HMRC and the course of the appeal to which we shall return later, but in relation to the arguments on Note (2) he makes the following points.

14.	First he says that Categena is not binding upon us.  He says we are not bound to find either that separate disposal was prohibited in his case or that a prohibition on separate use necessarily constitutes a prohibition on separate disposal.  

15.	Second he says that there was no arrangement, agreement or covenant given which would prohibit the separate disposal of the granny annexe.  The planning obligation agreement with the local authority continued no such restriction.

16.	That he says that “or” in condition (c) means “or”, and since the separate disposal was not prohibited, the condition is satisfied.

Discussion – Condition (c)

17.	It seems clear to us that condition (c) is satisfied only if there is both no prohibition on separate disposal and no prohibition on separate use.  Effectively it encompasses two conditions.  If it had read “the separate use, and disposal ... is not prohibited” then if one activity but not the other were prohibited the condition would be satisfied, but the use of ‘or’ to our mind makes plain that neither separate use, nor separate disposal may be prohibited.  To that extent we agree with the tribunal in Cartegena.

18.	It does not seem to us, however, that the separate disposal of the granny annexe is prohibited.  The fact that a subsequent owner would be affected by the planning condition as to its use may mean that the granny annexe would have a small market value, but that would not prevent its disposal either by sale or by gift or by testamentary disposition.  The statutory condition is that there should be no prohibition on separate disposal not that there should be no prospect of realising any substantial amount on its sale or no likelihood that the number of potential purchasers would be large.  “Disposal” is a word of wide meaning.  A gift is a disposal; a lease may be a disposal : the gift or leasing of the granny annexe to a housekeeper for the main home would be a disposal and in our view would not breach the planning condition.  We are not able to follow the tribunal in Cartegena on this issue.

19.	It seems clear to us, however, that the separate use of the granny annexe is “prohibited” by the statutory planning consent.  The restriction on use of the granny annexe is expressed as a “condition” to which the consent is subject but is in mandatory terms : “shall not be used for any purposes other than ...”.  In our view this condition may properly be described as a ‘prohibition’ on use for particular purposes within the meaning of that word in condition (c).

20.	This planning prohibition is on use for purposes other than those ancillary to the main house and on use as a separate unit of residential accommodation in its own right.  That prohibition in our view may clearly be described for the purposes of condition (c) as a prohibition on the “separate use” of the granny annexe.

21.	This we find that the statutory planning consent prohibited the separate use of the granny annexe.

22.	We are not dissuaded from this conclusion by the possibility that a later date the condition might be removed.  It seems to us that the relevant planning consent is the consent in accordance with which the works were undertaken or any consent which otherwise affects the building at the time those works are undertaken.  The tribunal in Harris concluded that the condition had to be satisfied “as at the time of the design of the building (that is, at the date of the planning consent) and not later.”  The planning consent in this context must in our view be the consent which permitted the works (or if there was more than one such consent the last before the works were undertaken) or any consent subject to which the works were undertaken.  (Likewise we do not consider that, for example, a covenant given after the works were completed restricting their separate use or disposal would be relevant to the satisfaction of the condition in paragraph (c)).  Since the planning consents for the work of conversion to the granny annexe included the restriction on use, no later removal of that restriction could affect the existence of the prohibition for the purposes of condition (c).

23.	We therefore find that condition (c) was not satisfied because, even though there was no prohibition on separate disposal of the granny annexe, there was a prohibition on separate use.  Thus the granny annexe was not “a building designed as a dwelling” within Note (2)(c) and the works were not a “residential conversion” or the “construction of a building designed as a dwelling” for the purposes of section 35.  As a result section 35 does not enable Mr Giblin to a refund of his input VAT.

Other Matters

24.	Mr Giblin made two additional points.  First he said that he had received confirmation from the Respondents’ Northampton office that he had a claim.  On the basis of that advise he had submitted his claim and responded to the questions raised; only to have it refused.  He felt aggrieved.

25.	We understand Mr Giblin’s concern but our jurisdiction in this appeal is limited to the question of whether or not Mr Giblin qualifies for a refund under section 35 and views expressed by the Respondents on that question (of whatever description) are irrelevant to the task given to this tribunal by the VAT Act.

26.	Second Mr Giblin drew to our attention a direction made by the Proper Officer on 27 November 2006.  This direction took the form of a stamp applied to the Notice of Appeal submitted by Mr Giblin.  The words on the stamp were:

“Unless notice of objection is served within 14 days, this application is allowed under Rule 38(1)(b) as being unopposed.”

The Proper Officer had signed the direction and dated it 27 November 2006.  No notice of objection was recorded.

27.	Mr Giblin submits that the effect of this direction was that the appeal had been allowed.  He says that if there is any doubt in the matter the benefit of that doubt should be given to the Appellant.

28.	Regulation 33 of the VAT Tribunal Rules 1986 provides that certain powers of a tribunal or a chairman may be exercised by ‘the Registrar’.  The Registrar is defined by regulation 2 to include any member of the administrative staff authorised by the President to perform the duties of the Registrar.  Proper Officers are persons so authorised.

29.	The powers which may be so exercised are spelt out in Regulation 33.  They are:-

	(a)  power to give a direction to which the parties consent;

(b)  “power to give or make any direction on the application of one party which is not opposed by the other party”;

	(c)  power to issue a witness summons;

	(d)  power to postpone a hearing;

	(e)  power to extend time; and

(f)  power to sign a direction recording the outcome of an appeal and any award or direction given or made by the tribunal.

The direction given in the stamp applied to Mr Giblin’s notice of appeal specified category (b) as that under which it was given.

30.	The Rules distinguish between an appeal and an application.  An application is a matter which arises during the course of an appeal and is to do with the conduct of the appeal or matters ancillary to the substance of an appeal.  The outcome of an application may be a direction relating to the hearing.

31.	Mr Giblin’s notice of appeal however contains no application for any direction relating to the course of the hearing or to matters preliminary to the hearing.  He makes in it no application that the appeal should be heard out of time (he ticked the box including that the appeal is in time) and made no application under Part C of the standard form notice that the appeal should be considered without payment of the tax (because this is not a case where he has to pay the tax before he can appeal since he is claiming a refund).  Thus, on the face of the notice of appeal, there is no application for any direction as to the conduct of the appeal to which the officer’s stamped direction could apply.

32.	In this context Mr Giblin contends that the Direction given in the stamp has the effect of allowing his appeal.

33.	In our judgement the stamped direction does not have that effect.  That is for the following reasons.  First, Mr Giblin’s appeal was in fact just out of time.  The initial decision of the Respondents was communicated to him by a letter of 5 September 2006.  Rule 4 of the Tribunal rules requires an appeal to be bought within 30 days of the decision – that is by 5 October 2006 unless either the tribunal otherwise direct or the Commissioners notify the appellant that they consent to an extension of 21 days from a set date.  In their reconsideration letter of 26 October 2006 the Commissioners assent to an extension of 21 days from the date of that letter for the making of an appeal – that is to 16 November 2006.  Mr Giblin’s notice of appeal is dated 22 November 2006 and was therefore just out of time.  Accordingly it could not be heard unless the tribunal made a direction that the time limit in the rules be extended.  It seems to us that the most likely explanation of the stamped direction is that a vigilant tribunal officer noticed the timing difficulty and exercised the power under rule 36(1)(b) to make a sensible direction to the intent that the time limit should be extended unless the Respondents objected.  The direction did not say that in terms but it is not an unreasonable interpretation of what was done.  On this basis it was not a direction allowing the appeal.

34.	Second, even if the stamped direction cannot be considered as having the effect suggested in the previous paragraph, and even if it was intended to be a direction that the appeal be allowed, it does not and cannot have that effect.  That is because the power given by Regulation 33 to the Registrar (or the Proper Officer) does not extend to allowing an appeal.  If the officer purports to do something for which he has no power then what he does is a nullity and has no effect.

35.	The officer can have only those powers given to him by the Regulations.  Those powers are set out at paragraph 29 above.  The power in subparagraph (b) is the only power which could conceivably come close to the power to allow an appeal, but in our view it clearly does not do so : it relates to a “direction” on an “application”; an appeal is not an “application” – there is a clear distinction made in the Rules between the two.  In the context of the procedural powers given by Rule 33, the power in (1)(b) could not in our view extend to the substantive determination of the appeal without the intervention of the tribunal.

Conclusion

36.	We therefore dismiss the appeal.  No application was made for costs and we make no award of costs.  Our decision was unanimous.

CHARLES HELLIER
CHAIRMAN

RELEASED: 20 September 2007

LON/2006/1286