First-tier Tribunal (Tax)

[2009] UKFTT 387 (TC)

 

 

 

 

 

                                   

                                                           

TC00322

Appeal number: LON/2008/1298

 

 

VAT refund – Garage -

 

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

 

 

                                            JOSEPH PODOLSKY                           Appellant

 

 

                                                                      - and -

 

 

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

 

 

 

 

 

                                                TRIBUNAL: FIONAGH GREEN (Judge)

                                                                        GILL HUNTER

                                                                       

 

 

 

Sitting in public in London on 5 November 2009

 

The Appellant in person

 

Mr Christiaan Zwart,  for the Respondents

 

 

© CROWN COPYRIGHT 2009

 

DECISION

 

1.         This is an appeal dated 12 June 2008 against the refusal to pay VAT of £12,578.72 under section 35(1C) of the VAT Act 1994 because the subject of the claim was not within section 35(1) and (1D) in qualifying within Note 8 of Group 5 to Schedule 8 as applied by section 35(4).

The relevant legislation

2.         The VAT Act 1994 provides by section 1(a) that VAT is required to be charged on the supply of goods or services, and by subsection (2) imposes that liability upon the person making the supply. By section 4(1), VAT is required to be charged on any supply where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.  By section 30(1), where a taxable person supplies goods or services and the supply is zero-rated, no VAT shall be charged on the supply where it qualifies within a description within Schedule 8. By contrast, section 35 provides as follows:

Section 35(1) provides;

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. 

 

By section 35(1A):

 

(1A)     The works in which this section applies are –

…

(c)        A residential conversion. 

 

By section 35(1D):

 

For the purposes of this section works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building, or a non-residential part of a building, into:

(a)        A building designed as a dwelling or a number of dwellings

(b)        … or

(c)        Anything which would fall within paragraph (a) or (b) above if different parts of a building were treated as separate buildings …

 

 

Section 35(4) provides:

 

The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group but this is subject to subsection (4A) below. 

 

Section 35(4A) provides:

 

The meaning of “non-residential” given by Note (7A) of Group 5 of Schedule 8 (and not that given by Note (7) of that Group) applies for the purposes of this section as if –

(a)        References in that Note to item 3 of that Group were references to this section, and

(b)        Paragraph (b)(iii) if that Note were omitted.

 

By Schedule 8, Group 5, descriptions are specified by Item number.  The Notes to Group 5 provide:

 

(1)        …

(2)        A building is designed as a dwelling or a number of dwellings where in relation to each dwelling [specified] conditions are satisfied;

(3)        The construction of, or conversion of a non-residential building to, a building designed as a dwelling or a number of dwellings includes the construction of, or conversion of a non-residential building to, a garage provided that:

(a)        The dwelling and the garage are constructed or converted at the same time, and

(b)        The garage is intended to be occupied with the dwelling or one of the dwellings.

…

(7A)     For the purposes of item 3, and for the purposes of these Notes so far as having effect for the purposes of item 3, a building or part of a building is “non-residential” if –

(a)        it is neither designed, nor adapted, for use –

(i)         as a dwelling or number of dwellings, or …

(b)        It is designed or adapted for such use but –

(i)         It was constructed more than 10 years before the grant of the major interest;

(ii)        No part of it has, in the period of 10 years immediately preceding the grant, been used as a dwelling or for relevant residential purposes, and

(iii)       No part of it is so used.

 

(8)        References to a non-residential building or a non-residential part of a building do not include a reference to a garage occupied together with a dwelling.

 

(9)        The conversion, other than to a building designed for a relevant residential purpose, of a non-residential part of a building which already contains a residential part is not included within items 1(b) or 3 unless the result of that conversion is to create an additional dwelling or dwellings …

 

The Issue

 

3.         The question is whether the Respondents were correct in refusing to pay the Appellant the VAT of £12,578.72 under section 35(1C) of the VAT Act 1994 because the subject of the claim was not within section 35(1) and (1D) in qualifying within Note 8 of Group 5 to Schedule 8 as applied by section 35(4). 

 

4.         The evidence and submissions of the parties

 

1.         The Appellant contends that:

 

(i)        the original building, by reason of its size proximity to another dwelling, lack of utilities separate disposal and subsequent use shows that it exceeded what any dwelling would need to be classed as a garage.  Its character and actual use show that its use as a garage was incidental to its main purpose.

 

(ii)       the conversion qualifies for a VAT refund under section 35 in that the building that was converted to a dwelling was a non-residential building prior to conversion.

 

(iii)      the building (then described as Pope’s Hall Coach House) “the building” is of a size substantially in excess of a typical garage and that its primary and predominant function was not as a garage but as an agricultural/ industrial building.

 

(iv)      the building was constructed to replace a pre-existing but decaying agricultural building previously used as an office, workshop and storage facility and that the later use of the building to park cars was based in terms of time and physical space insubstantial and incidental to its design and that it was physically separate from the farmhouse some 100 yards distant and that the buildings internal structure did not contain any space specifically identifiable for parking cars.

 

2.         The Respondents contend that:

 

(1)       qualification within section 35(1)(a) assumes qualification within section 35(1D) which assumes:

(a) (i)  qualification within Note 7A; and

     (ii)  no qualification within Note 8; and

(b)    the existence of a dwelling within the physical compass of the whole building which previously contained at least one. 

 

(2)       the Appellant cannot qualify within section 35(1D) since part of the subject building qualified within Note 8 “as a garage” occupied together with a dwelling. 

 

(3)       Note 9 of Group 5 to Schedule 8 is irrelevant but that in the hypothetical circumstances that Note 8 is not relevant, the subject building cannot qualify within Note 9 since it did not before conversion contain within its four corners a dwelling.

 

(4)       the Tribunal failed to properly direct themselves in law in:

(a)       Sally Cottam VAT Decision 2000/20499/20036: Sally Cottam by first considering whether a building designed as a dwelling arose under the subsequent criteria of section 31(1D)(a) and that (b) VAT Decisions 2000/20499/20171 Robert Duncan Blacklock, holding that an additional dwelling may be created where none existed before.

 

(5)       in EC Commission v United Kingdom (Case 416/85) [1988] STC 456 that:

 

“the measures adopted by the United Kingdom in order to implement its social policy in housing matter, that is to say facilitating home ownership for the whole population, fall within the purview of “social reasons” for the purposes of the last indent of Article 17 of the Second Directive”. 

 

(6)       in EC Commission v Finland (Case C-C169/00) [2004] STC 1232 the Court confirmed that “the terms used to specify the exemptions which constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person must be interpreted strictly”.

 

(7)       in Customs and Excise Commissioners v Blom-Cooper [2003] EWCA Civ 493, [2003] STC 669, the Court of Appeal considered the true construction and effect of section 35(1D) and considered whether the works carried out to convert a building of which part was formerly in non-residential use, into a single dwelling, constituted a residential conversion within the meaning of section 35.  It held that the true purpose and effect of Note 9 in conjunction with the then terms of Note 7 was to give a restricted meaning to the expression “converting [or conversion of] … a non-residential part of a building” and, by operation of (the then terms of) section 35(4), that the restricted meaning was to be given to that expression as it appeared in section 35(1D) and held that on the facts the subject building did not qualify within section 35(1D)(c)

 

(8)       the Court expressed, obiter, that in relation to a hypothetical case within section 35(1D)(c) that a hypothetical part of the building would qualify as a “building designed as a dwelling”: and, “where an actual building, taken as a whole, already contained a residential part, conversion of the non-residential part would result in the creation of an additional dwelling”.

 

(9)       in Customs and Excise Commissioners v Jacobs [2005] EWCA Civ 930, [2005] STC 1518, the Court of Appeal considered the interpretation of Note 9 applied to a former residential school where the issue was whether that “additional dwelling or dwellings must be created in the non-residential part alone or in the building as a whole”.  The Court of Appeal held that the result of the conversion of the non-residential part of the building which already contained the residential part must be to create an additional dwelling.  The (pre-existing) dwelling has to exist outside the area contained within the non-residential part.

 

(10)     the Appeal cannot succeed for the following reasons:

 

(i)        for section 35(1) to apply so as to require the Respondents refund the claim, section 35(1A)(c) requires there to be first works qualifying as “a residential conversion”;

(ii)       that section 35(1D) defines “a residential conversion” by application of the following sequential criteria:

 

(a)       qualification within Note 7A (applied by section 35(4A));

(b)       no qualification within Note 8 (applied by section 35(4));

(c)       in consequence, qualification within section 35(1D);

(d)       subsequent qualification within section 35(1D)(a);

(e)       subsequently, that Note 9 (applied by section 35(4)) does not apply to the “result”.

 

and that on a correct interpretation:

(iii)  Note 8 applies to prevent qualification of a subject building or part within section 35(1D) where: (1) at least part qualifies as a “garage”; and (2) it has been occupied at some time within a period co-incident with that stated in Note 7A(b)(ii); (3) together with a dwelling.

(iv)   the genesis of the period for consideration within Note 8 arises as follows.  Whilst expressed in the present tense for general application within Group 5, the currency of Note 8 applied within section 35 is historic for a 10 year period coincident with Note 7A terms as applied. This is because within section 35: (1) Parliament has excluded from relevance by section 35(4A) consideration of the present use of the dwelling; (2) qualification within Note 7A results in a qualifying building or part within section 35(1D); (3) Note 8 bars qualification under (2) from arising before it results; (4) thereby, the currency of Note 7A and 8 coincide; (5) otherwise, a Note 8 dwelling may subsist presently despite the deletion of Note 7A(b)(iii).

(v)    there was no farmhouse dwelling, nor that part of the subject building was not used as a garage, nor that the latter was not occupied together with the farmhouse dwelling and that Note 8 applies and its terms bar further qualification of the subject building within section 35(1D) and further consideration of it within section 35(1D)(a) is irrelevant.

(vi)   on a correct interpretation, applied to hypothetical facts, Note 9 here bars the result of the conversion qualifying within section 35(1D)(a) from subsequently qualifying within section 35(1)(c) where the subject building did not before contain within its four corners a dwelling. It cannot be said that the subject building contained before a dwelling because the Appellant applied for planning permission for a change of use to a dwelling.

(vii)  the Tribunal failed to properly direct itself in law in the cases of Sally Cottam and Robert Blacklock. 

 

5.         Findings

 

1.         There is no dispute between the parties as to the background facts.  In the mid-19th century some agricultural structures were erected on land at The Street, Hartlip, Kent which include a farmhouse and, about 100 metres away, an agricultural store.  In 1961 Wakeley Brothers Ltd acquired the land.  Mr Wakeley used some of the land including the farmhouse for his personal holding.  In about 1962 the structures suffered storm damage and in about 1966 planning permission was obtained for a new structure on the store site and this was replaced by a new building (“the Building”).

 

2.         William Wakeley provided a signed statement dated 12 March 2009.  The building, Paddock House, and associated land was sold to the Appellant on 9 December 2003.  Paddock House is situated 100 yards from Mr Wakeley’s property Pope’s Hall.  The original structure on the land where Paddock House was built was damaged beyond repair during the heavy snowstorm in 1962 and using a similar footprint to the original agricultural building Wakeley Brothers Ltd rebuilt a new structure for the company in 1967.  The use of the new structure was to replace the existing buildings and amalgamate into one, as a workshop to mend agricultural equipment and for the storage of agricultural chemicals for Wakeley Brothers Ltd, as housing for agricultural equipment and vans, tractors and cars, as a subsidiary office for Wakeley Brothers Ltd and the storage of business records and equipment.  The planning application indicated that the primary use of the building was to replace the existing buildings and the use thereof.  The structure of the building made it suitable for potential conversion from an agricultural/storage building into a house at some time in the future and in 2000 planning permission was granted to convert the building into a house but the property was sold in 2003 to the Appellant. 

 

3.         In October 2003 the Appellant instructed architects to draft plans for adaption of the building (then described as Pope’s Hall Coach House) and the plan showed the existing and proposed physical circumstances including within the existing grounds for a central carport. 

 

4.         On 9 December 2003 Mr Wakeley exchanged contracts for the purchase of the building and some of the land to the Appellant. 

 

5.         On 13 January 2004 the Appellant’s architect applied to the local planning authority for planning permission for the development of the building by its “change of use” and described as “conversion of existing garage/workshop to 5-bed detached dwelling and erection of double detached single storey garage”.  The existing use was listed as being garage/workshop. 

 

6.         On 5 March 2004 conditional planning permission was granted for the development referred to in the application for permission for development dated 13 January 2004 subject to conditions. 

 

7.         On 10 July 2007 the Appellant completed the works to the building with a certificate of completion being dated 13 July 2007 with the description “conversion garage and workshop to dwelling”.  The certificate was signed by the principal building surveyor. 

 

8.         On 27 July 2007 the Appellant gave details of the work carried out at the building conversion with his application for a VAT refund for DIY conversion and giving details of the work carried out between occupation and completion. 

 

9.         The site area in the planning application Form 1 is 0.120 hectares. 

 

10.       On 9 November 2007 the Respondents refused the claim.

 

11.       On 19 November 2007 the Appellant notified the Respondents that the national advice service had advised on three occasions that the mainly non-residential use of the building meant that it was exempt under the DIY scheme.  The contact centre confirmed enquiries made on 6 January 2004, 1 March 2004, 12 May 2004  and subsequent correspondence between the Appellant and the Respondents. A  Complaint was made by the Appellant in respect of the advice provided by the VAT advisory service which was disputed by the higher office complaints team.

 

12.       The evidence of Mr Wakeley makes it clear that Paddock House prior to its conversion was in part residential and in part non-residential.  It was accepted by the Appellant that a small part of the building was used by Mr Wakeley to park his car together with housing for agricultural equipment vans and tractors.  It was therefore decided that at least part of the subject building qualified as a garage occupied within a ten year period together with the farmhouse dwelling of Pope’s Hall. 

 

13.       In order for the Appellant to be entitled to a refund of the amount of VAT chargeable on supplies of building work with associated eligible goods and/or supplies of eligible goods section 35(1A)(c) requires there to be first works qualifying as a residential conversion.  Section 35(1D) defines a “residential conversion” by application of the following sequential criteria:-

 

(i)        qualification within Note 7A (applied by section 35(4A);

(ii)       no qualification within Note 8 (applied by section 35(4));

(iii)      in consequence, qualification within section 35(1D);

(iv)      subsequent qualification within section 35(1D)(a);

(v)       subsequently, that Note 9 (applied by section 35(4)) does not apply to the “result”.

 

14.       Note 8 to Group 5 of Schedule 8 clearly states that “references to a non-residential building or a non-residential part of a building do not include a reference to a garage occupied together with a dwelling”.  The wording of Note 8 makes it clear that a building can be residential (or not non-residential) in whole or in part and all parts of the building were therefore carefully considered.

 

15.       Note 8 (applied by section 35(4)) applies to prevent qualification of a subject building or part within section 35(1D) where at least part qualifies as a garage and where it has been occupied at some time within a period coincident with that applied within Note 7A(b)(ii) together with the dwelling.  The Appellant accepts that part of the subject building was used as a garage and it was therefore decided that the subject building falls within Note 8 and therefore cannot qualify as a “non-residential building”.  The subject building was physically used as a garage.  The fact that part of the subject building was used as a garage means that Note 8 is applied in respect of the whole of the subject building and which therefore excludes the conversion from falling within section 35(1D).  As the conversion falls within the qualification of Note 8 (applied by section 35(4)) the Appellant is unable to satisfy the provisions of section 35(1D) and whether the subject building falls within section 35(1D)(a) and consideration of Note 9 is not relevant.

 

16.       The Tribunal carefully considered the case law and the submissions of both the Appellant and the Respondents regarding case law and the VAT Act 1994.  It was decided that the facts of this case could be distinguished from the facts in the Sally Cottam case and Robert Duncan Blacklock.  In the Sally Cottam case a barn later to become Greengage Cottage has stood within the grounds of Orchard Cottage and the out building was partly two storey and partly one storey.  The question in that case was whether in relation to Greengage Cottage the relevant “building designed as a dwelling” condition in Schedule 8, Group 5, Note 2(d) is satisfied i.e. “statutory planning consent has been granted in respect of that dwelling and its … conversion has been carried out in accordance with that consent”.  It was decided that Sally Cottam did have consent to carry out the conversion works and that the outbuilding in its entirety had been converted and that the outbuilding could not properly be described as garage nor as a garage occupied with a building.  It was decided that the facts of this case could be distinguished from the Sally Cottam case.

 

17.       The case of Robert Duncan Blacklock was also distinguished from the facts of this appeal.  In the Robert Duncan Blacklock case the question for the Tribunal was whether Mr Blacklock’s conversion works resulted in the creation of an additional dwelling being an essential condition of section 35 by virtue of Note 9 to Group 5 of Schedule 8 to VATA.  In this appeal it was decided, on the facts, that Note 8 applies in respect of the whole of the subject building and results in its exclusion from within section 35(1D) and that Note 9 would assume the result of the conversion and that consideration would not therefore take place within Note 9 of a conversion excluded because it fell within the Note 8 provisions.  Subsequent consideration of whether there is or is not an additional dwelling within the four corners of the subject building as in the case of Robert Duncan Blacklock and indeed in the Court of Appeal cases of Commissioners of Customs and Excise v Blom-Cooper[2003] STC 669 and Customs and Excise Commissioners v Jacobs [2005] EWCA Civ 930, [2005] STC 1518 are distinguished from this appeal which falls within the exclusion by application of Note 8 from the terms of qualification within section 35(1D) VAT Act 1994.

 

18.       The Appellant understood that he would be able to obtain a refund of the VAT of £12,578.72 under section 35(1C) of the VAT Act 1994 and correctly submitted his claim to the Respondents in the honest belief that he would be entitled to the refund.  However after full consideration of the facts of this case and on hearing from the Appellant and Respondents and in applying the law the appeal has to fail as part of the subject building qualifies within Note 8 of Group 5 to Schedule 8 as applied by section 35(4) of the VAT Act 1994 and the subject building is therefore excluded from qualification within section 35(1D) of the 1994 Act.  The appeal is therefore dismissed.

 

 

FIONAGH GREEN

TRIBUNAL JUDGE

RELEASE DATE: 31 December 2009