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Cite as: [2009] UKFTT 202 (TC)

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Terry (t/a Wealden Properties) v Revenue & Customs [2009] UKFTT 202 (TC) (07 August 2009)

[2009] UKFTT 202 (TC)

TC00155

Appeal number LON/2009/0403

Value Added Tax - Claim for VAT refund in respect of the cost of building a new house - whether the Appellant, who constructed the house, and to whom the taxable supplies were made of both building materials and sub-contract labour was constructing the house in the course of business - Appeal dismissed - Informal consideration of whether the Appellant might recover the relevant VAT by applying for voluntary registration

FIRST-TIER TRIBUNAL

TAX CHAMBER

WILLIAM JOHN TERRY

(in business as Wealden Properties Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS (VAT) Respondents

TRIBUNAL: HOWARD M NOWLAN

SHAHWAR SADEQUE, M.PHIL, MSc

Sitting in public in London on 31 July 2009

The Appellant in person

Robert Wastell, counsel, on behalf of the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction

This was a case where, to date, the Appellant (who built a house for a life-long friend, Mr. Chaplin) and Mr. Chaplin have, on HMRC's contentions, fallen into the trap that occasionally precludes the usual and intended recovery of VAT in respect of building material costs incurred in the course of building a new dwelling-house. Had Mr. Chaplin himself directly borne the materials costs that we conclude were rightly said to have been incurred by the Appellant, and had the Appellant's role been confined to one of merely acting as an agent in the purchase of the materials, Mr. Chaplin could have recovered the VAT charged by the suppliers. As it was, it was the Appellant who bore those costs in the course of his overall role of building the house. The Appellant was not registered for VAT purposes and so could not treat his services to Mr. Chaplin as the zero-rated services of building a new house, rendered by a registered trader. The Appellant has also failed to date to recover the costs himself, as a "self-builder" under section 35 VAT Act 1994, because that section does not apply if the claimant built the house in the course of his business, and HMRC has contended that the Appellant did precisely that. In the normal case, that conclusion, whilst precluding recovery under section 35, will nevertheless permit the recovery of VAT,since in the vast majority of cases the builder will be registered for VAT purposes and, as just mentioned, will recover VAT on supplies received and will not have to charge VAT on his own supplies because his services will be zero-rated. The trap thus is for the person who bears the materials costs to be said to be undertaking the building in the course of his business, but not to be registered for VAT purposes.

Our conclusion in this case is that the Appellant was rightly asserted by HMRC to have built this house in the course of his business. The facts summarised below will reveal that this conclusion was not a manifest and obvious conclusion, though we do reach our decision, albeit slightly reluctantly, without hesitation.

The Appellant was plainly aggrieved by the difficulties that both he and Mr. Chaplin had had in seeking to recover the VAT. He regarded it as objectionable that the VAT was not being refunded to one or other of Mr. Chaplin or himself.

We spent some time at the hearing considering the possibility first that the Appellant might recover the whole of the related input VAT if he now sought voluntary registration as from the start date of the project. As a separate point, we noted that, whether or not he sought voluntary registration himself, once his invoices to Mr. Chaplin had exceeded the registration threshold (as fairly obviously they did), he was in fact required to be registered, whereupon he should still recover the VAT in respect of inputs borne after the date of registration, at least if referable to zero-rated supplies.

We have sought to release this decision as quickly as possible after the date of the hearing because we have noted that the start date of the project was approximately three years ago, and voluntary registration cannot be back-dated for a longer period than three years.

Most of the rest of this decision will deal only with the point that alone is strictly relevant to this appeal, namely whether HMRC are right to have contended that recovery under section 35 by the Appellant is precluded because he was indeed acting in the course of his business.

The facts in more detail

The Appellant was an impressive gentleman, now aged 76. He had for a long period carried on a business, under the business name "Wealden Properties". This business involved the ownership and letting of commercial properties. Since such letting was exempt for VAT purposes, the Appellant was not registered for VAT purposes. It appeared that some years ago he had been registered but he had found the complications of registration irritating and not worth the marginal benefits, and he ceased to be registered well before the period relevant to this appeal.

In the course of his business the Appellant had become very familiar with building and building maintenance, and in maintaining his various commercial properties he had long-standing relationships with builders and other traders in the building industry, and with building materials suppliers.

The Appellant had been a friend of Mr. Chaplin for over 50 years. The correspondence illustrates this, since the correspondence that we were shown was written on a first-names basis, inevitably to both husband and wife.

On an occasion in 2006 when the Appellant and his wife visited Mr. and Mrs. Chaplin, the Appellant gathered that Mr. Chaplin wanted a bungalow built for his disabled step-son. He had apparently had a quotation for the building from an established builder, which had been quite high though no figure was mentioned to us. The Appellant thought that it would be an interesting challenge to undertake the supervision of the building himself and, although he had never been a builder as such, he relished the challenge and considered that his general experience equipped him to oversee the project.

On 1 August 2006 the Appellant wrote to Mr. and Mrs. Chaplin, using Wealden Properties headed paper, tendering to build the bungalow. The tender was based on existing plans and quoted a price of £98,000. Various exclusions were mentioned and nothing was quoted for most of the site work outside the building. Mr. Chaplin apparently accepted the tender and immediately gave the Appellant a cheque for £50,000.

The Appellant gave evidence on oath and was cross-examined by counsel for the Respondents. We were never precisely clear, however, of the basis on which the tender price had been calculated. It seems from later correspondence with a Mr. Barry Vanns of Vanns Jones, Chartered Building Surveyors, that Mr. Vanns had informed the Appellant "in the early summer of 2006, that the building cost of a bungalow of this type would be about £1250 per sq. metre which, multiplied by the size, produced a build cost of about £100,000 (your estimate £98,000) not including VAT. This sum did not include external works, new services to electricity and boundary walls, paving or fencing."

We found the reference in the extract from the letter just quoted to "the building cost" to be rather ambiguous. We certainly accepted the Appellant's evidence that he was not pricing his quote in order to make a material profit himself, and that insofar as he expected that he would dedicate countless hours to supervising and planning the project, as he did, he would not expect to charge for this. Whether Mr. Vanns, in quoting a rough building cost, would have based that cost on what a third-party builder who oversaw the whole project would have charged in budgeting to make a profit, or whether Mr. Vanns assumed that the Appellant would attend to all the supervision and planning, so that the only costs that Mr. Vanns was addressing were materials costs (bought at the sort of discounts that the Appellant expected to obtain) and the third party charges (presumably with their own profit margins) from those undertaking the groundwork, bricklaying, joinery, plastering, plumbing etc, we were not clear.

Whilst we remained slightly confused as to the basis on which the Appellant had costed his tender, we believe that the following is a fair summary of the basic intentions:

• we accept that the Appellant was not aiming to make a material profit, and we imagine that he had included nothing or very little for the time that he expected to dedicate himself to the project;

• we accept that the Appellant was undertaking the project both as a favour to a friend, and as an interesting challenge;

• the Appellant's tender did not however expressly state that he would charge simply on the basis of recovering materials and third party costs, and certainly nothing suggests that if the building costs had eventually fallen short of £98,000, the Appellant would have charged only the lesser sum; and

• we nevertheless imagine that the Appellant's tender price was calculated in a way that made it very competitive, consistent with our first two observations.

Two problems arose in the course of building the bungalow. One was that the Council's surveyor had apparently got his levels wrong so that, because the site had a greater slope than had been calculated, more excavation and more brickwork was required. More significantly, when the foundations were dug, the builders hit the remains of a 17^th Century pottery kiln, which involved an archaeological dig, plus additional steel and concrete reinforcement in the foundations. Beyond these problems, the specification was upgraded in various ways in relation to tiling, and internal fittings and fitted cupboards etc.

These extra costs led to discussion between the Appellant and Mr. Chaplin and, in preparation for this discussion, the Appellant had again consulted Mr. Vanns, and it was in response to this consultation that Mr. Vanns had referred back to the original basis of costing that we quoted in paragraph 12 above. We again found the report of the discussion between the Appellant and Mr. Chaplin about the cost overruns slightly confusing, and the basis on which Mr. Vanns produced his revised figures also to be curious.

In a letter to the Appellant, Mr. Vanns calculated the additional costs at a figure of nearly £43,000, exclusive of VAT. On the day on which the Appellant received the letter from Mr. Vanns with the details of excess costs, namely 16 November 2007, the Appellant wrote to Mr. Chaplin and, having explained some of the problems that had arisen in the course of building, he then made the following rather strange remarks:

"Having now received all the invoices and statements following the completion of the bungalow, I have been able to pass these to Mr. Vanns to ascertain the additional work undertaken to complete the bungalow to your requirement. Quite frankly, I am more than shocked by the final computation of the extra cost incurred and I have carefully questioned Mr. Vanns on the costing he has recorded. I was left with no doubt that he is correct in his determinations. Unfortunately, my bank overdraft currently reveals this fact. You may wish to speak to him directly on the additional work undertaken when I shall be pleased to be present.

Notwithstanding the foregoing, I can say with confidence that the bungalow has been constructed with all diligence and care. I question whether another contractor could have dealt so ably with all the problems that have arisen in the building of the bungalow. I have personally expended many hundreds of hours on this project over and above the basic cost of construction. I have, however, the satisfaction in handing over to you a delightful home for Paul and for which we can all be proud."

It appears that there was then a deal under which the Appellant and Mr. Chaplin agreed that Mr. Chaplin would pay an additional £30,000. It then subsequently transpired that the additional costs were not £30,000 but £25,600, whereupon the extra amount that Mr. Chaplin paid over the original £98,000 was settled at £25,000. It thus followed that, ignoring the VAT implications, the Appellant charged nothing for his time and work, and he lost £600. Quite how all this squares with the figures that Mr. Vanns produced of an additional £43,000, exclusive of VAT, with the first paragraph quoted above from the Appellant's letter to Mr. Chaplin, suggesting that Mr. Vanns' figures were based on actual costs and invoices, remained something of a mystery. The only conclusion that we could reach was that the Appellant lost £600, he charged nothing for his time and work and possibly some of Mr. Vanns' figures were the costs that third party builders might fairly have charged. We refer in paragraphs 41 to 45 below to the separate question of who has actually lost money as a result of the present failure to recover any of the VAT in respect of the materials.

The Application to allow the appeal on a technical ground

We first had to deal with an application from the Appellant that his appeal should be allowed because he claimed that the Respondents had been late, in terms of complying with a Direction from Mr. Hellier given in an earlier hearing. Mr. Hellier's direction had ordered the Appellant to give the Respondents a brief summary of his business and his involvement in the construction of the bungalow in question within a seven-day period, and had then said that the Appeal should be allowed unless the Respondents served their Statement of Case within 21 days after receiving the information from the Appellant. The Appellant claimed that he had complied with the Direction and that the Respondents had been one or two days late in complying with the Direction to provide their Statement of Case.

The Respondents drew our attention to the fact that, although their Statement of Case had been furnished more than 21 days after the Appellant had delivered his summary, he had actually delivered his summary not to the Respondents but to the Tribunal, and it was clear that the Respondents had not received it until a date that meant that they had furnished their Statement of Case within the 21-day period of actually receiving the summary.

We decided that the Appeal could not be allowed therefore on the basis requested by the Appellant. We also confirmed that we would have varied the Direction and still refused the claim that the Appeal should be allowed on this technical ground, even if the provision of the Statement of Case had been a few days late. Matters might have been different if there had been an unreasonable delay in providing the Statement of Case but in the present case justice would not have been served by allowing the Appeal on this technical ground, quite apart from the fact that we concluded that the Statement of Case had in fact been served within the specified time period.

The claim by Mr. Chaplin

In an appeal by the present Appellant we were naturally not concerned with whether there was any validity to the alternative claim that had been made by Mr. Chaplin. Since the Appellant was adamant that one or other claimant should recover the VAT, we might just say that on our limited understanding of the facts, HMRC were correct to reject the claim from Mr. Chaplin. It was rejected on the basis that the suppliers' invoices were all rendered to the Appellant so that their services were not rendered to Mr. Chaplin. On the basis that the Appellant clearly tendered to undertake the whole project; that he received payment from Mr. Chaplin in "periodic stage payments" of four amounts; that none of the discussions about cost overruns were phrased in terms that Mr. Chaplin owed the various amounts actually charged by third parties; and that apparently all of the third party invoices were rendered to the Appellant, it does seem that HMRC correctly rejected any claim by Mr. Chaplin based on the notion that he was the recipient of the goods supplied by the various third parties.

The basic legal question in relation to the Appellant's Appeal

The Appellant's claim was to recover VAT under section 35 VAT Act 1994. Section 35(1) provides that:

"Where

(a) a person carries out works to which this section applies,

(b) his carrying out of the works is lawful and otherwise than in the course or furtherance of any business, and

(c) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works,

The Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable."

Section 32(1A) provides that:

"The works to which this section applies are:-

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

(b) the construction of a building for use solely for a relevant residential purpose or relevant charitable purpose; and

(c) a residential conversion."

Section 94(1) VAT Act 1994 defines business as including any trade, profession or vocation.

It was accepted by HMRC that the Appellant satisfied the requirements of section 35, save for the feature that they contended that the Appellant had undertaken the works in the course or furtherance of his business. The case thus turned entirely on the issue of whether we decided that the Appellant had undertaken the building works in the course of a business.

The Appellant's contentions

The Appellant's technical ground of appeal was that to deny a refund of VAT would be contrary to natural justice (presumably on the basis that generally speaking VAT incurred in building a new dwelling is either not chargeable or is refundable). More generally however, in the course of argument, the Appellant effectively contended that we should conclude that his work in relation to the particular bungalow was not undertaken in the course of a business on the grounds that:

his actual business, of investing in, managing and letting commercial properties was quite distinct;

he had never built a building before or after the occasion material to the present Appeal;

he essentially built the bungalow in the present case as a favour to a friend; and

consistently with the previous point, he operated on a somewhat non-commercial basis, contributing the whole of his work for nothing, and fundamentally operating on the basis that he would recover and charge for third party costs only, and would make no profit.

The Respondents' contentions

The Respondents contended that:

on the evidence it was not clear that the Appellant was building the bungalow on a non-profit basis. His original tender and the correspondence that passed in relation to the negotiation as to how much Mr. Chaplin should pay as a result of the over-spend on unanticipated problems made no mention of the basis of the deal being merely for the charge of third party costs;

even if the work was undertaken on a non-profit-making basis there was still authority, in the case of C&E Commissioners v. Morrison's Academy Boarding Houses Association [1978] STC 1, for the proposition that an activity could be a business activity even where it was expressly non-profit earning; and

on the basis of applying the six tests (which we quote below) of the indicia of when something is done in the course of business, set out by Gibson J in the case of C&E Commissioners v. Lord Fisher [1981] STC 238, the right conclusion was that the Appellant was building the bungalow in the course or furtherance of his business.

Our decision and the reasons for it

Our starting point is an aspect that attracted little attention during the hearing but we think that it is important. This is the feature that we consider that it is realistic to treat the activity of building the bungalow as being a natural extension or progression of the Appellant's main and undisputed business, and that this lends great support to the proposition that the building activity was done in the furtherance of that business.

In reaching this conclusion we are not losing sight of the fact (which occasions an even more marked distinction in the case of income tax law than VAT law) that the Appellant's fundamental business of letting commercial property was an investment activity and not a trading activity at all, whereas the building of the bungalow was certainly not done in the furtherance of investment. We note in passing that the Appellant has apparently claimed the loss in the building activity of £600 as a loss for income tax purposes, and that can only be right if the activity was admitted to be a trading activity. And since "business" for VAT purposes is defined to include any "trade", the Appellant's income tax claim of itself suggests that the building activity was done in the course of business for VAT purposes. We are however not relying on this as constituting any sort of admission on the part of the Appellant, and we are influenced, in looking at the relationship between the commercial property letting activity and the building of the bungalow more by the factors that we now turn to.

While we accept that there is a fundamental difference between the Appellant's investment activity and the building of the bungalow, it is clear that the building activity was a quite natural extension of the main activity. If, by contrast, the Appellant and his wife had commenced a casual activity of offering drinks and teas to walkers who walked passed their house, and this was done half to make a bit of profit but also as a gesture to the walkers, that activity might have ranked as a business. No-one would however have thought it remotely relevant to consider the fact that the Appellant had a more major activity of letting commercial properties. And the drinks and teas would never have been expressed to be made available by "Wealden Properties".

The significance of the investment activity in this case is that the Appellant was plainly expecting to use the knowledge and experience of managing and maintaining investment properties in the new venture, he knew that he would be using the suppliers and sub-contractors that he had used in his main activity, and he had no hesitation in tendering for the project in the name of "Wealden Properties". It seems to us, therefore, that although the new activity was not an investment activity, it was nevertheless a fairly natural extension of the Appellant's undisputed business activity, and that makes it very difficult to distance it from being in the course of business. In other respects, concerning the expert and organised way in which the Appellant approached his new challenge, it seems to us that this all adds further support to the proposition that the new activity was indeed an extension of the Appellant's main business, conducted in the way and with the same organisation as the main business.

We turn now to the issue of whether the building of the bungalow was to be undertaken on a non-profit basis. We have already summarised the slightly confused facts in relation to this in paragraphs 11 to 14 above, and in paragraph 14 we gave the conclusions that we thought were reasonably reliable. For present purposes we have to say that there was never any express mention of the fact that the Appellant would merely charge for third-party costs and would contribute the whole of his work gratuitously. We accept that the project was accepted both as a challenge and as a favour to a friend, but the terms of the tender, and the few remaining bits of correspondence suggest that the Appellant was quoting a price for the whole job. Had the costs eventually fallen short of £98,000 the Appellant would have made a profit, and there is no reason to suppose that he would have refunded the excess to Mr. Chaplin. We thus think that the right conclusion is that the Appellant was aiming to offer a very competitive quote, he was certainly not aiming to make a significant profit out of work for his friend, but it would be wrong to say that the deal was essentially along non-profit lines, of merely cross-charging for third party invoices.

We naturally understand that the authority of the Morrison's Academy case is that something done on a non-profit basis can be done in the course of business. A significant factor in that case was, however, that the activity was a long-term activity and not remotely a single supply. The activity in the present case was borderline in this context. Just as it broadly had the status of being semi-non-profit-making, it was also borderline in the context of whether it was one isolated supply or an activity done regularly. We accept that this was the first and last house that the Appellant ever built, but it was nevertheless a very major activity that doubtless involved work and involvement for many months, and it was also somewhat related in nature to an activity that was unquestionably a continuing long-term activity.

Lord Fisher's case is an example of a case where an activity was held not to be a business activity. In that case, friends and relatives were contributing to the costs of a shoot, as indeed was Lord Fisher himself since he also bore a share of the costs. On the reasoning that the motivation was that of enjoying a sporting activity and not trying to render a service, and that all participants shared costs on a non-profit-making basis, the activity was held not to be a business activity. We find this case of little assistance to the Appellant here. His activity, by contrast, was not a casual sporting activity but the very challenging activity of providing the whole of the coordination and supervision of building a house in a thoroughly professional manner. It also lacked the feature that the friends merely "picked up a share of the costs". It is far easier to treat something as a non-business activity when various people share the costs and just enjoy the resulting activity, than when one renders a service for a charge, bears all the costs and is responsible for the whole organisation and supervision of the project.

We will now test the activity in this case along side the six indicia spelt out by Gibson J. in the Lord Fisher case, putting the test in italics, and our observations on the facts of this case after each suggested test.

The tests suggested by Gibson J. were:

whether the activity was a serious undertaking earnestly pursued; we can only say that the Appellant in this case was an impressive gentleman who pursued his chosen task and challenge, we believe, as a very serious undertaking, to which he gave great attention.

whether the activity is an occupation or function which is actively pursued with reasonable or recognisable regularity; whilst we accept that this contract was an isolated instance of the Appellant building a house, its affinity with his other business of property management and maintenance somewhat reduces the significance of the fair claim that this operation was an isolated one;

whether the activity has a certain measure of substance in terms of the quarterly or annual value of taxable supplies made; once we resist the temptation to treat this as a repetition of the test about "recurrence" just addressed, it certainly cannot be said that this activity was something "trivial", or a sort of "hobby" activity. Once the Appellant had been awarded the contract in this case, we imagine that the Appellant accepted that he had taken on a very major challenge, and something that will have involved hundreds of hours of work and worry. We say that it had a very marked "measure of substance". Indeed it was the sort of challenge that few men, whatever their age, would have the confidence to undertake.

whether the activity was conducted in a regular manner and on sound and recognised business principles; there are really two tests here, our answer to the first being the answer to the second test above, and our answer to the issue of whether it was conducted on sound and recognised business principles being that in substance it was. We accept that the activity was done for a friend and that there was certainly no aim to maximise profit in the way that every ordinary builder would have sought to do, but we cannot think that the Appellant approached the task without aiming to operate efficiently and in an expert manner.

whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration; whilst accepting that the aim was not to maximise profit, the tender and the resultant contract demonstrate that the activity was one of supplying a house for a charge. In contrast, in the Lord Fisher case, it was easier to say that Lord Fisher asked his friends to contribute to costs, and then they all enjoyed the resulting sport. Here the essence of the contract was unquestionably that the Appellant was to build a house for £98,000.

Whether the taxable supplies are of a kind which, subject to differences in detail, are commonly made by those who seek to profit by them; indisputably this was so.

In overall terms, we consider that the fact that the Appellant entered into a contract to build a house for a charge; that this was something for which his basic business gave him the experience, knowledge and the required contacts; that he obviously had to take the whole project extremely seriously, and carry it out efficiently and that building a house for a third party is not the sort of activity that can be seen as a casual or hobby type of activity, we conclude that this activity was done in the course or furtherance of business.

It follows from our conclusion that the building was undertaken in the course or furtherance of the Appellant's business that we must dismiss this appeal. This is the only issue strictly before us, but without in any way changing the conclusion that the appeal is dismissed, we would like to add various comments in relation to the possibility that the Appellant might yet be able to recover the VAT by a different approach.

The alternative basis for recovering the VAT

Whilst it was always recognised that the following considerations were irrelevant to the only matter that was strictly before us in this Appeal, we did enter into some discussion with both counsel and the representatives of HMRC, who attended the hearing, as to whether or not the Appellant might recover some or all of the VAT by seeking registration.

It seems to us that the Appellant was wrong to suspect that the representatives of HMRC were trying to block the claims to recover VAT by both himself and Mr. Chaplin in an unfair manner. There is a trap under which the recovery of VAT in relation to a new building operation can be put in jeopardy, and we summarised this in paragraph 1 above. We consider that the representatives of HMRC were applying the law correctly, and since they had even indicated that the Appellant might be able to recover the VAT by seeking registration, we believe that the representatives will be helpful and cooperative if the Appellant seeks registration.

As we observed at the hearing, it appears that once the Appellant's charges had exceeded the VAT threshold, as they did, then on the Respondents' approach (that we have now confirmed) that he was supplying the services in the course of a business, from that point onwards he should have been registered, whether he sought voluntary registration or not. Compulsory registration from the point the VAT threshold had been exceeded would appear however to result in only a partial recovery of input tax for the latter part of the project, and as the representatives of HMRC pointed out, voluntary registration might secure the full recovery of VAT. We have sought to release this decision quickly since the beginning of the three-year period for backdating registration appears to be close to the date when Mr. Chaplin gave his first cheque, at some time in August 2006, for £50,000. It may be that since, at that point, no costs would have been incurred, the Appellant might still recover the full VAT even if registration can now only be back-dated, perhaps, to some date after the provision of the first cheque. We hope that this can all be discussed rapidly with the VAT authorities.

Whilst it is again straying away from the proper subject of this decision, we would like to air several other relevant points which we very much hope can be discussed with the authorities;

• Once the house-building project ceased, it appears that thereafter the Appellant was only rendering exempt supplies, so that if he wished to de-register after the completion of the house-building project, that should be feasible;

• Assuming that the Appellant was registered voluntarily from some date in August 2006, would it be possible to attribute all building inputs relating to the house-building project to the taxable supplies to Mr. Chaplin, and continue to treat the supplies in the main letting activity as exempt?

• Would the Appellant still recover the whole of the VAT on relevant supplies if he received £50,000 from Mr. Chaplin before the date of back-dated registration, but all the related supplies to him were made after the date of registration?

• The representatives of HMRC pointed out that there could be other implications to voluntary registration, in that if the Appellant rendered any services that were neither exempt nor zero-rated, he would then be liable for VAT. It seems to us that this would not matter if there were related inputs that had actually borne VAT, with VAT invoices supplied, and in any event the Appellant seemed confident that his services to Mr. Chaplin would all have been zero-rated.

Who would benefit from the recovery of VAT?

During the hearing there was some discussion about who would benefit if the Appellant had succeeded in his claim to recover VAT. At one point, the Appellant had tentatively suggested that he would have the discretion as to whether to pass on any refund to Mr. Chaplin, and at another point he seemed to suggest that a refund might be shared on a 50/50 basis. Counsel for the Respondents had seized on these remarks to suggest that they indicated that they undermined the Appellant's claim that he was not seeking to make a profit, and that if he was really not seeking to make a profit, then he should pass the whole of any refund to Mr. Chaplin.

The reason why we are now referring to this discussion is that, having considered the figures, and looked at the letter from Mr. Vanns, we think that there may have been some misunderstanding during the hearing.

Not surprisingly, the Appellant's tender to Mr. Chaplin made no reference to whether the figure of £98,000 was inclusive or exclusive of VAT. We assume, however, that it may have been exclusive of VAT. We base this largely on the fact that in the first paragraph of Mr. Vanns' letter, that we quoted in paragraph 12, Mr.Vanns was suggesting that his estimate of £100,000 was very close to the Appellant's £98,000, and the £100,000 was expressly stated to be exclusive of VAT. Similarly when the cost over-runs were being debated, whether the excessive costs were £43,000, £30,000 or £25,600 we find very confusing, but one clear point is that Mr. Vanns' figures were again exclusive of VAT.

It occurs to us therefore that if all the figures were exclusive of VAT, then when we were told that the total charges against Mr. Chaplin were £123,000, and that the monies expended in the construction were £123,648.18, and that there was a loss of just in excess of £600, the correctness of this calculation very much depends on whether the costs, insofar as they were amounts paid to suppliers, were inclusive or exclusive of VAT. Since the expectation when the charges were rendered was that the VAT would be recovered, and since all of Mr. Vanns' figures were expressly "exclusive of VAT", if the "monies expended" figure just given was indeed exclusive of the related VAT that the Appellant will so far have paid and not recovered, it may follow that the Appellant's present loss is in fact £648 plus the VAT not recovered. Were that so, then it would appear that if the Appellant was able to recover the VAT, then it might indeed be fair and coherent for the Appellant to retain any recovery.

We only mention this issue because there seems to have been some confusion between the figures that we have considered since the hearing, and the discussion on this issue during the hearing.

Costs

No application was made for costs by the Respondents, and no award is made.

HOWARD M NOWLAN

TRIBUNAL JUDGE

RELEASE DATE: 7 August 2009