First-tier Tribunal (Tax)

[2010] UKFTT 254 (TC)

TC00548

Appeal number:  TC/09/16696

Value Added Tax – Building Works – whether zero-rating applicable to restoration of house – VATA 1994 Schedule 8, Groups 5 and 6 – Appeal Dismissed.

FIRST-TIER TRIBUNAL

TAX

                                     JACQUELINE WILLIAMSON                    Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL JUDGE:            Mr Kenneth Mure, QC

                        Member:                                Mrs Charlotte Barbour, CA., ATII

Sitting in public at 126 George Street, Edinburgh on 21 May 2010

Appearance in person for the Appellant

Mr Julian Winkley, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This appeal is directed against the ruling of the Respondents contained in their letter to the Appellant dated 17 September 2009 (page 14 of the Bundle) that certain building works undertaken at her dwellinghouse at The Square, Johnshaven, Montrose, did not qualify for zero-rating for VAT purposes.  The Appellant made payment inclusive of VAT to her builder which she hopes to recover from him in the event of zero-rating being appropriate.

The Law

2.       Section 30(2) Value Added Tax Act 1994 provides for zero-rating of services specified in Schedule 8.  Group 5 therein includes supplies in the course of the construction of a building designed as a dwellinghouse (Item 2).  However, this is subject to Note (16) which excludes the “conversion, reconstruction or alteration of an existing building” or “any enlargement of, or extension to, an existing building”.  The sense of “existing building” in this context is explained in Note (18).

3.       Group 6 provides for zero-rating of an approved alteration of a “protected building”.  This is defined in Note (1) thereto.  The definition includes a “listed building” in terms of planning legislation.  An “approved alteration” is similarly defined in Note (6). 

4.       The Respondents referred to:-

C&E v Marchday Holdings Ltd [1997] STC 272;

Catharine McCallion (EDN/05/40); and

Angus Maclugash t/a Main & Maclugash (EDN/97/146)

The Facts

5.       In addition to correspondence between the Appellant and the Respondents there were before us letters from the local authority and other parties and we had the benefit of having colour photographs of the copies produced at pages 56/57 of the Bundle.

6.       We heard evidence briefly from the Appellant which did not prove to be controversial.  On the basis of that and the correspondence and other items produced we make the following Findings-in-Fact in relation to the crucial aspects:-

(1)        the Appellant is owner of the dwellinghouse at The Square, Johnshaven, Montrose.  She bought it in 2002 and carried out the building work in about 2007.  Its state at acquisition and before the construction works began is shown in the copy photographs at page 56 of the Bundle.  It was dilapidated.  It consisted of essentially a shell of 4 external walls.  The roof had been removed by the previous owner as being in a dangerous condition (pages 39/40).

(2)        The copy photographs at page 57 show its external state after completion of the works.  The walls have been pointed and restored and secured by means of 2 RSJs.  Part of one wall, about 8 feet in length, was removed to install a staircase.  The roof has been restored.  An upper storey has been built, with dormer windows.  The building is now used by the Appellant as a dwellinghouse. 

(3)        While the house is in a conservation area it is not a “listed building” for purposes of the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997.  (The Appellant accepted this in her oral testimony and we note also the terms of her written submission at page 41 of the Bundle). 

(4)        There was no documentation before us indicating that the building was a “protected building” or “listed” or that the works involved an “approved alteration” in the context of Schedule 8 of the 1994 Act.

(5)        The Respondents’ response to the Appellant’s enquiry as to the eligibility of the works for zero-rating for VAT purposes is set out in their letter dated 17 September 2009 (pages 14-17 of the Bundle).  Essentially the works did not qualify for zero-rating.

Parties’ Submissions

7.       Helpfully Mr Winkley agreed to lead at the Hearing.  He explained the basis for the Respondents’ arguments in support of their “ruling” in the letter of 17 September 2009.  HMRC had considered (although ultimately rejected) 2 possible arguments in support of zero-rating.  Mr Winkley’s submissions are set out in a detailed written document which is produced and which he adopted.  Its terms may be summarised as follows.  Firstly, building services supplied in altering a “protected building” can qualify.  (See Group 6, Item 2 of Schedule 8).  However, the building did not fall within the sense prescribed (see Note 1).  In particular it was common ground between the parties that the building was not “listed” and thus did not fall within the definition of a “protected building”. 

8.       Alternatively, zero-rating was appropriate for supplies in the course of construction of a building for use as a dwellinghouse (see Group 5, Item 2 of Schedule 8).  However, by virtue of Note (16) this does not extend to “the conversion, reconstruction or alteration of an existing building” or the “enlargement of, or extension to, an existing building”.  The relevant works, Mr Winkley argued, fell aptly within these categories and so could not qualify for zero-rating.  By reference to the decisions in Marchday Holdings Ltd, Catharine McCallion, and Main & Maclugash, he submitted that the bare 4 walls in the present case amounted to an existing building.  The terms conversion, reconstruction, alteration or enlargement could each apply to the restoration work and the extensions made to the building.  Accordingly zero-rating was not appropriate.

9.       Miss Williamson replied in spirited terms.  When she bought the structure, it was a ruin or a shell, not a building, she argued.  The state of the walls had deteriorated.  It was open to the elements.  It did not have a roof.  There were no facilities or services.  It could not be insured as a building (page 54 of the Bundle).  Although it was not a listed building, it was in a conservation area and Historic Scotland had an interest in the locality.  Thus, Miss Williamson explained, she could not demolish the walls but had to install 2 RSJs to secure them.  Her house as restored, enhances the area, she argued.  Had she not restored the house it would have become a gap site.  She considered that there was a lacuna in the relevant VAT legislation, were zero-rating not extended to restoration works such as she had undertaken.  This was not a conversion.  The legislation, if applied rigidly to the circumstances of her claim, would cause manifest unfairness in her view. 

Decision

10.    We consider that the terms of the ruling contained in HMRC’s letter of 17 September 2009 are well-founded.  However, we do acknowledge that there is a certain logical force in the Appellant’s argument and we have some sympathy with it.  VAT legislation provides for zero-rating for new buildings but the relevant terms are precisely defined and somewhat circumscribed.  The scope is restricted to “new build” work.  As a Tribunal we cannot, of course, relax these to accommodate other claims however well-merited they might appear to be.

11.    In the first place it is accepted that the house was not a listed building.  Thus it does not qualify as a “protected building” within Group 6 in the sense prescribed by Note (1) thereto.  (Even in that case the works in question would have to represent an “approved alteration” as defined in Note 6.  This was not suggested).

12.    The (only) other means of qualifying for zero-rating which was argued, was via Group 5, Item 2, categorisation which extends essentially to “new builds”.  The issue then arises whether exclusion by virtue of Note (16) thereto results.  This, of course, is the exception in respect of “(a) the conversion, reconstruction or alteration of an existing building; or (b) any enlargement of, or extension to, an existing building...”.  This was considered by the Court of Appeal and the Tribunal in the cases cited.  The issue of whether there was an “existing building” before the commencement of the works is a question of fact, depending on the circumstances peculiar to the individual case.  Here the 4 walls remained standing.  Note (18) which helps to define an “existing building” does not assist, nor was it argued as supportive of the Appellant’s case.  The case-law warns that undue emphasis should not be placed on “newness”.  The emphasis must be on whether the completed works represent a conversion, alteration or enlargement.  We agree with Mr Winkley’s submission that the works fall aptly within the sense of a conversion or reconstruction, with an extension or enlargement.  From the appearance of the building in the photographs before and after completion of the work it seems to us that the essential structure and nature of the building is retained.  That approach, we consider, is consistent with the ratio of the cases cited.

13.    Accordingly for these reasons the Appeal falls to be dismissed.

This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

MR KENNETH MURE, QC

TRIBUNAL JUDGE

RELEASE DATE:  7 JUNE 2010