[2010] UKFTT 458 (TC)

TC00723

Appeal number: TC/2009/12256

VAT – DIY housebuilders scheme – residential conversion – part of converted building used as a garage – apportionment of VAT claim – VATA, s 35(1D)

FIRST-TIER TRIBUNAL

TAX

JOHN CLARK (No 2) Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JUDGE ROGER BERNER

MISS SHEILA WONG CHONG FRICS (Member)

Sitting in public at 45 Bedford Square, London WC1 on 23 September 2010

The Appellant appeared in person

Christiaan Zwart, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       On 10 June 2010 we released our Decision (reported at [2010] UKFTT 258) in Mr Clark’s appeal against the refusal by HMRC to refund to him VAT of £9,230.74 under the Refund Scheme for D-I-Y housebuilders contained in section 35 of the Value Added Tax Act 1994 (“VATA”).  As we described more fully in that decision, the dispute arose in respect of certain works carried out by Mr Clark himself in converting an existing garage/stable block into a dwelling to be used by himself and Mrs Clark as a residence.

2.       We decided that the works carried out by Mr Clark did not qualify as the construction of a building designed as a dwelling within section 35(1A)(a) VATA, but that those works did constitute a residential conversion within section 35(1)(c), but only to the extent that the works consisted of the conversion of the part of the existing building excluding the garage.  We allowed Mr Clark’s appeal subject to adjustment to exclude from the claim VAT attributable to the conversion of the garage area.  The parties could not agree how this adjustment should be calculated, and we have therefore heard their submissions on this point.

The parties’ respective positions

3.       Mr Clark submits that he is entitled to some 81% of the sum he has claimed on the basis that the garage floor area comprised about 19% of the building at the time of its completion.  Out of a total floor area of the original building of 57.75 square metres, the garage area was 28.05 square metres.  During construction the fabric of the converted building was extended.  Taking account of both the ground floor and the first floor of the completed building, the total floor area was 150.4 square metres.  Mr Clark accordingly submitted that the total proportion of the new (converted) building that was the existing garage is 18.6% of the total finished area.  This equates to £1,716.92 of the original claim of £9,230.74.  He submitted therefore that the claim should be allowed to the extent of £7,514.82.

4.       Mr Clark argued that the purpose of the law was to allow D-I-Y housebuilders to recover VAT on the works they had carried out.  In considering what part of the claim should be excluded by reference to the part of the original building that was a garage, regard should be had to the fact that the former garage area comprised only a part of the finished building, which was of a greater area than the original building as a whole.  There was nothing in the legislation that required the work in extending the original building to be excluded.  It was therefore appropriate for VAT to be reclaimed on materials that had been bought in connection with the whole of the job excluding only that part which related to the part of the new building that comprised the former garage.

5.       Mr Zwart, for HMRC, submitted that, having regard to section 35 and Note (8) of Group 5 of Schedule 8 VATA, firstly that the apportionment had to be by reference to the original building, and not the completed building, and secondly that such an apportionment should be calculated by volume of the building and the relevant part, and not simply by floor area.

Discussion

6.       There is nothing in section 35 or in Group 5 of Schedule 8 VATA that specifically provides for the method to be adopted for apportionment in a case where only part of a building that is converted into a dwelling is non-residential.  However, in determining how such an apportionment ought properly to be approached, regard must be had to the statutory basis on which such an apportionment is required.

7.       Our finding in this case was that the works amounted, in part, to the residential conversion of the non-residential part of the original building.  Under section 35, a refund is to be made where VAT is chargeable on the supply of goods used for the purpose of works that constitute a residential conversion.  By section 35(1D) works can constitute a residential conversion only to the extent that they consist in the conversion (to a dwelling or certain other categories of building) of a non-residential building or a non-residential part of a building.  The extent of the works for which a refund can be made is determined by reference to what is ascertained to be the non-residential element of the original building that is converted.

8.       We accept Mr Zwart’s submissions in this respect.  The question of apportionment must have as its basis the statutory construction of section 35 and Group 5 of Schedule 8.  What must be ascertained is the extent of the works that consist of the residential conversion in question.  Where a stand-alone building that is solely non-residential is converted into a dwelling or other relevant building, the whole of the conversion works will qualify for the refund, irrespective of whether the new building has the same or an enlarged footprint.  Equally, if the building converted is wholly residential, no part of the works will be eligible for a refund, even if part of the works are on an extension.  In each case, the question is determined by the status of the original building.  Section 35(1D) directs attention to the respective parts of the original building, and not to the newly-completed building into which the original building has been converted.  We therefore decide that the apportionment must be by reference to the respective parts of the original building that are residential and non-residential.

9.       We also accept that, in principle, Mr Zwart is correct in his submission that strictly an apportionment should be by reference to volume and not floor area.  In determining what part of a building is, on the one hand, residential and, on the other, non-residential, regard must be had to the building as a whole.  We note, however, that in many cases there will be no material difference between a calculation based on volume and floor area.  Unless the building is of uneven height, or has dimensions that otherwise render a calculation by reference to floor area unjust or unreasonable, we would expect a tribunal in most cases to adopt a calculation based on floor area as a fair proxy for a volume calculation.  In all such cases the principle is that an apportionment should be to ascertain that part of the original building that was non-residential, and should be calculated on a just and reasonable basis.

10.    A particular issue arises in connection with the use of roof space in a building.  We accept Mr Zwart’s submission that since the roof is for the purpose of making the useable space in the building wind- and water-tight, it should be included in any volume calculation. Accordingly, where the roof space is not itself used for any purpose other than as part of the infrastructure of the building, it will simply be an element of the building as a whole, and follow the designation of the building as wholly or partly residential or non-residential, as the case may be.  However, an issue arises as to the proper designation of roof space that is itself used.  The issue arises in this case, as the roof space above both the garage and stable block elements of the building was, on Mr Clark’s evidence, used for storage.  In Mr Clark’s original grounds of appeal he submitted that the storage element of the original building amounted in total to 80% of the whole.  Based on this he argued at the earlier appeal that the original building in its entirety was not a garage.  We rejected that argument in our previous decision, but it is relevant for consideration in determining the extent of the original building that was occupied as a garage within the terms of Note (8) of Group 5.

11.    In our view, a building or part of a building is occupied as a garage if it is used or is available for use for the housing of a vehicle or vehicles, or is occupied for any other purpose that is ancillary to its occupation as a garage.  Mere use of roof space or any other area of a building, or part of a building, that is occupied as a garage, for storage does not take that space or area out of the description of garage for this purpose.  It is only if that space or area is used for an independent, separate, non-residential purpose that is not ancillary to that of a garage that such space or area will be regarded as outside the scope of Note (8).  Accordingly, where roof space is used for a purpose that is not separate and independent from the use of a building, or part of a building, as a garage, and is not used for a purpose that is solely referable to the separate and independent use of another part of the building, that use will not prevent the roof space being treated as part of the garage, and thus as itself part of the residential building or part of the residential part of the building.  This will in each case be a question for a tribunal to determine by reference to the facts of a particular case, but we would ourselves see a distinction between use for general storage, and, for example, distinct use of roof space for an office, or as a hay loft.

Application to the facts

12.    The evidence of Mr Clark, which we accept, is that the roof space of the original building was one continuous space over both the former stable area and the garage area.  It was accessed via a trapdoor from the ceiling of the stable room.  It had been used for general storage of old furniture, books and other household items.  On this basis, we find that this storage was not a separate and independent use, or a use solely referable to that of the stable room (or any other part of the building), but was ancillary to the occupation of the whole building, and thus in part ancillary to the part of the building occupied as a garage.  The roof space above the garage area itself was therefore part of the garage, and thus part of that part of the building treated by Note (8) as not non-residential.

13.    The apportionment, as we have found, is to be calculated by reference to the respective parts of the original building.  In this case the original building had a full hipped roof.  However, it appeared to us from the plans produced in evidence, and at the hearing the parties accepted, that the original building, and in particular its roof was evenly-proportioned over the garage and stable room elements.  On this basis, and having concluded that the roof space was itself to be regarded as partly residential and partly non-residential in identical proportions to the floor space below, we do not consider that there could be any material difference in this case if floor area is used instead of volume.  We therefore conclude that a just and reasonable apportionment can be arrived at on the basis of the floor areas of the original building as a whole (57.75m²) and the floor area of the original building excluding the garage (29.70m²).  The percentage of the works that constitute a residential conversion in this case, therefore, is 51.43%.  Applying this to the total claim of £9,230.74 (the quantum of which has not been disputed in this appeal), the amount refundable under section 35 VATA is £4,747.37.

Decision

14.    For the reasons we have given, we allow the appellant’s appeal in part, and we determine the amount of the refund of VAT at £4,747.37.

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.

ROGER BERNER

TRIBUNAL JUDGE

RELEASE DATE: 30 September 2010