20426

ZERO-RATING – Construction of building – Dwelling house – Self-build construction of house for own occupation – Defective plasterwork installed by contractor – Complete replacement plastering required – Whether supply of new plastering service after “Certificate of Completion” a supply in the course of construction of a new dwelling – Yes – Whether that supply was for the  reconstruction or alteration of an existing building – No – VAT Act Sch. 8 Group 5 It. 2 and Note (16) – Appeal allowed 

LONDON TRIBUNAL CENTRE

	MR AND MRS JAMES          	 Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	SIR STEPHEN OLIVER QC (Chairman)
						A J RING FTII
					 	MRS C FARQUHARSON ACA

Sitting in public in London on 30 October 2007

The Appellants in person

Vikiam Sachdeva, Counsel, instructed by the General Counsel and Solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	Mr and Mrs James appeal against a decision in a decision letter of 23 November 2006.  The effect of the decision was that remedial plastering works carried out to their home was not eligible for zero-rating.  

2.	The position in a nutshell is this.  Mr and Mrs James were building their own house.  They had used contract plasterers whose work had been unsatisfactory.  The old plasterwork had to be stripped out and replaced by new plastering installed by a new firm of plasterers.  The stripping out and replacement works took place after the Certificate of Completion had been issued.

3.	Customs refused the James’ claim to have the remedial work zero-rated because in their view the work was to an existing building.  Zero-rating, they ruled, only applied if the work concerned formed part of the construction of a zero-rated building.  The decision letter said that work consisting of “snagging or correction of faults … carried out after the building had been completed … can only be zero-rated if it is carried out by the original contractors and correction of faults forms part of the building contract.  When the snagging is carried out by a different contractor, the work is to an existing building and does not qualify to be zero-rated”.  

4.	The James’ grounds of appeal in their Notice of Appeal stated that the Customs’ guidelines on “snagging” do not take into account extraordinary circumstances.  The contention in essence was that the re-plastering works carried out on the James’ property was eligible for zero-rating because they had no choice but to engage the services of a contractor other than the one who carried out the original works.

5.	The supplies to which the James’ claim relates are entirely supplies of the services of the plastering contractor who was engaged to re-plaster the inside of the house.  They could have, but did not, claim zero-rating relief for the goods that they purchased to provide the re-plastering materials.  

6.	The law is found in VAT Act 1994 Section 30 and Schedule 8 Group 5.  (Because there are no claims for relief on the supplies of the goods, Section 35 has no application.)  Section 30 provides that the supplies of goods or services are zero-rated where they full within Schedule 8.  Schedule 8 Group 5 provides, so far as is relevant as follows:

	“2  The supply in the course of the construction of –

(a)	a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable  purpose; or 

(b)	…

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.”

Note (16) of Schedule 5 provides that “the construction of a building” does not include “(a) … the conversion, reconstruction or alteration of an existing building”.  

7.	Customs, represented by Vikiam Sachdeva, argue that the re-plastering works amounted to the reconstruction or alteration of the house which was, when the supplies were made, an “existing building”.

8.	The James, between them, presented the facts.  Their case was that the construction work had not been complete when the remedial plasterwork was done.  There had been no alterations; the remedial work had been done to fulfil the original plan.  

The Background Facts

9.	The house is on land at 32 Benner Lane, West End, Woking.  The house replaced a smaller dwelling.  The James built it themselves using services of contractors when necessary.

10.	Work started in 2004 with the demolition of the existing dwelling.  The house was architect-designed and built on the basis of his plans that had been presented for planning permission.  The local building inspector was involved at all stages.  The house was to be in three stories and to contain four bedrooms.

11.	The James engaged a plasterer (the original plasterer) who started work in early March 2005.  The architect’s plans did not contain detailed specifications for plastering; they only said – “All walls to be plastered”.  The original plasterer’s charge was to be £12,000 for the plastering work.  The James soon noticed problems with the standard of the work.  On 17 May 2005 they prepared a list of faults.  A first survey tended to confirm the James’ concerns.  The James decided to discontinue using the original plasterer.  It had become apparent to them that virtually all the plasterwork would have to be hacked off and redone.  This was subsequently confirmed by their own independent surveyor.  The James consulted their insurers.  They were put in touch with solicitors.  Samples of the existing plasterwork was sent for analysis with a view to legal proceedings being taken against the original plasterer.  This took some time.  The James were advised by their solicitors not to re-plaster the house until the time was suitable in the context of the legal proceedings. 

12.	The James had moved into the house in March 2005.  At that stage the house was not habitable.  It became habitable at Eastertime in 2005; but for a long time after that they needed a ladder to get access to their bedroom upstairs.

13.	The state of the original plasterwork was defective in several respects.  The ceilings were uneven and cracking: the plaster had not been properly made good at the staircase areas.  Upstairs, the plasterwork fell down.  Elsewhere the plaster had not been keyed in properly.  It did not extend to the edges of the electrical fittings or behind central heating pipes.  It was uneven and crazed.  There were still areas where plasterwork was needed but had not been done.  No window reveals had been plastered. We were shown a camcorder record of the state of the old plasterwork.  It was evidently defective in all those respects.

14.	The James took the view that the plasterwork of the original plasterer had been wholly unacceptable and had to be completely replaced.  Legal proceedings against the original plasterer became a reality.  On 6 July 2006 the James received an independent expert witness report.  The report expressed the prognosis that the defects would worsen and that piecemeal repairs and making good would not address the problem. 

15.	Later in July 2006 the James applied to the Council for a “Certificate of Completion of Works”.  The Certificate records compliance with Building Regulations in the following words –

“It is certified so far as the Council have been able to ascertain, after taking all reasonable steps in that behalf, the substantive requirements of the relevant Building Regulations have been satisfied.”

At the time when the Certificate of Completion was granted the plastering was as the original plasterer had left it.  There was no coving, no garage ceiling and no window reveals; the staircase plastering had not been completed and there were other gaps.

16.	Why did the James apply for the Certification of Completion while the plastering problem remained unresolved?  The main reason, Mr James explained (and we accept), was the need for funds.  The James could not remortgage the house without such a certificate and they needed to borrow a substantial amount.  They could not reclaim VAT under the D.I.Y. builders scheme until the Certificate of Completion had been issued; in this connection they needed funds to pay a VAT consultant for his services.  And they were aware that the building inspector was beginning to wonder why the building works were taking such a long time.  The other fourth reason was that they needed the house assessed for Council Tax which could only happen when the certificate had been issued.

17.	By November 2006 the James had engaged a new firm of plasterers.  Mr James himself stripped off all the plaster that had been installed by the old plasterer.  The new firm then did a completely new plastering job.  The James paid £10,500 for the new plasterer’s services.  James purchased the materials themselves but, as already mentioned, have made no claim under the D.I.Y. Builders Scheme for the VAT on those.

Conclusions

18.	Customs emphasised the facts that the James had been living in the house for some time and had obtained the Certificate of Completion, in both circumstances before the new plastering work had been done by the new plasterer.  Those features indicated that the house had been constructed before supply of the new plasterer’s services had been made.  The house was an “existing building” by then and the new plasterer’s work amounted to “the reconstruction or alteration of an existing building”.  

19.	We are satisfied that in the present circumstances the new plastering work was supplied in the course of the construction of the building as a dwelling house.  There was no reconstruction or alteration of an existing building in the sense contemplated by Note (16) to Group 5 Schedule 8.

20.	The James’ construction project was to build a new dwelling house.  Plasterwork of an acceptable standard was an integral part of the construction works.  The old plasterer’s works turned out to have been defective.  The James were advised that making good would not remedy the problem.  They were driven by circumstances outside their control to remove the old and defective plasterwork and install new plasterwork to complete the construction project.  The new plasterwork was done at the earliest practicable opportunity.

21.	We do not think that the fact that the Certificate of Completion was issued before the remedial plasterwork was carried out affects the conclusion that we have reached.  The Certificate was issued as part of the procedure required by the Building Act 1984 and the Building Regulations of 2000.  It records that the substantive requirements of the Building Regulations have been satisfied.  But to the naked eye the old plasterwork was obviously inadequate and dangerous that we could not possibly consider that the construction project had finished until the new plasterwork was installed.  This had been the position since well before the issue of the Certificate of Completion.  Nor do we think that it matters that the James had been living in the house why the works were going on.  The fact of occupation is not of itself significant as to whether the construction of the new dwelling house was completed by that time.

22.	For those reasons we allow the appeal.  The remedial plastering works were zero-rated.  We grant the James their reasonable costs of and incidental to the appeal.  If the amount cannot be agreed the matter should be referred back to this Tribunal (chairman alone) for a ruling.

SIR STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 9 November 2007

LON/2007/0328