First-tier Tribunal (Tax)

[2011] UKFTT 82 (TC)

TC00959

Appeal reference: TC/2010/02564

ZERO RATING – construction of a dwelling house and detached garage – time lapse between the two being built – whether garage built “at the same time” as dwelling – VAT Act 1994 Section 30(2); Schedule 8, Group 5, item 2(a) and note (3) – appeal allowed in part

FIRST-TIER TRIBUNAL

TAX

PALMERS OF OAKHAM Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY’S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Peter Whitehead (Member)

Sitting in public in Birmingham on 13 December 2010

Adrian Palmer, managing director, for the Appellant

Bill Brooke, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.           This appeal arises out of the Commissioners’ decision that the building services supplied in connection with the construction of a detached triple garage with a first floor games room should have been standard rated, rather than zero rated as contended by the Appellant.

2.           The Appellant’s case was presented by Mr. Adrian Palmer, the managing director of the building firm which had undertaken the construction.  We heard oral evidence from Mr. Gerald Solomons, the owner of the property.

3.           The facts were largely undisputed and we find to be as follows.  In 1995, Mr. Solomons and his wife moved into Horninghold Hall, a large house with extensive grounds (some nine acres) situated in the hamlet of Horninghold near Market Harborough within a rural conservation area.  After some seven years, Mr. and Mrs. Solomons decided the grounds were too large to manage readily and they decided to apply for planning permission to build a smaller house within the grounds for their own future use, the proposed split leaving the original house with around six acres and the new house with a more manageable three acres.  This application met with a determined campaign of opposition from local residents and the planning process was so beset with objections that two applications were turned down before finally a plan acceptable to the local planning authorities was presented and, by permission dated 22 October 2003, Mr. and Mrs. Solomons were given permission to erect “a dwelling and attached triple garage and store”.

4.           Various conditions were attached to the planning consent and there followed further appeals and negotiations with the planning authorities, which were finally resolved in May 2004.  Mr. and Mrs. Solomons had not intended to begin work immediately, but to wait until they themselves were nearer to retirement and the financial resources to carry out the work were fully available.  However, it became apparent to them during their discussions with the planning department that if the planning consent, which had a duration of five years, were to lapse, any subsequent application may well not have been granted.  This meant that some element of the construction had to begin within the five years which would be deemed substantial enough to satisfy the condition that the development “shall be begun” within the five years.  Advice was taken from the planning department, who advised that the construction of the detached garage with its overhead games room would do just that.  Palmers were duly instructed and work began on this unit in March 2006, the final invoice being submitted by Palmers in September 2006 although actual work continued until the end of the year.  Given Mr. Solomons’ financial constraints, what Palmers in fact did was to build the external structure so that the block gave the outward impression of being complete but internally was no more than a shell.  The building of the house was still on hold, but throughout 2007, as the funds became available, Mr. Solomons employed various contractors to work towards the completion of the garage, including supplying and fitting the lighting, fixing the flooring and cupboards, plastering and decoration.  The building inspector maintained contact throughout, and on 9 October 2008 signed a certificate of completion for the “detached garage with first floor games room” (we cite the exact description as this has some relevance to later submissions on apportionment).  We were shown a letter from the Principal Building Control Officer for Harborough District Council dated 30 November 2010.  The letter was headed “detached garage with first floor games room at Horninghold Hall”.  The letter went on “with reference to the above Building Control application I can confirm that works commenced on 12 October 2005 and completed on 9 October 2008”.

5.           During 2007, although not yet in the financial position to begin work on the house, Palmers were retained to carry out some preliminary work on boundaries and drainage.  In early 2008, Mr. Solomons found himself in a rather better financial position than he had anticipated and steps were taken to begin the construction of the house.  A price was agreed with Palmers but before they could start, consent had to be sought to the removal of some trees.  A survey was carried out and a comprehensive management plan drawn up by an arboricultural specialist, but again local opposition and objections caused extensive delays and the necessary consent was not finally issued by the Council until 23 March 2009.  Work on the house began immediately and was substantially finished in May / June 2010 although some fine-tuning continues to date.  During 2010 and once the construction of the house was underway, further “mutual” work was carried out on the garage, which could only be done in conjunction with the main house.  This included drainage, the fitting of a pressurised water supply feeding both the house and the garage, and electrical, IT and telecom ducting.

6.           The building inspector had inspected the house some three weeks before the tribunal hearing, and Mr. Palmer and Mr. Solomons were waiting to hear from him whether he was ready to give his certificate of completion.  Once that is in place, the architect will be invited to give his Certificate of Practical Completion, which will attach to the entire development.  The new property, known as Horninghold House, was entered into the Valuation List with effect from 18 October 2010 and was on the same date given a six-month exemption from Council Tax which will become fully payable as from 17 April 2011.

Legislation

7.           Section 30(2) VAT Act 1994 zero rates such goods or services as are specified in schedule 8 of the Act.  Schedule 8, group 5, item 2 lists “the supply in the course of the construction of a building designed as a dwelling…”.  Note 3 to group 5 provides that the construction of a building designed as a dwelling includes the construction of a garage providing that the dwelling and the garage are constructed or converted at the same time and the garage is intended to be occupied with the dwelling or one of the dwellings.

Submissions

8.           It was not in dispute that the garage block had not so far been used or occupied at all, and the Commissioners accepted that the proviso in note 3(b) that the garage was intended to be occupied with the dwelling was satisfied.  The issue before the tribunal was whether the first proviso in note 3(a) was met, namely that “the dwelling and the garage are constructed or converted at the same time”.  A further issue arises on the question of apportionment, which we will deal with later in this decision.

9.           Mr. Brooke maintained that the statutory provisions should be interpreted literally and not purposively.  It did not matter what the spirit and intent of the law was, it was purely a question of timing.  We were referred to the tribunal decision of Chipping Sodbury Town Trust v Commissioners for Customs and Excise (16641) and the comments of Mr. Angus Nichol, the chairman, that “…in the absence of a definition of “at the same time” it seems to us that the words should be given their ordinary  meaning…”.  This case was a mirror image of our case in that the issue was whether the dwelling houses were completed before the garages were begun.  The tribunal took the view that whilst a Certificate of Practical Completion may be indicative, it would not be conclusive.  In paragraph 22 the tribunal said:

“It is necessary to look at the actual circumstances to see if construction has in fact been completed.  In the present case we are concerned with whether the garages were constructed at the same time as the dwellings: in other words had the dwellings in fact been completed before the garages were begun?”

…

“We also agree with the contention that the construction of the dwellings was completed when the planning permission had been fulfilled...”

10.        It was Mr. Brooke’s contention that the garage / games room was completed to all intents and purposes by 30 September 2006, some two years and two months before building work on the dwelling itself commenced.  Even looking at the Building Regulations Completion Certificate, issued 9 October 2008, there was a gap of some 19 weeks.  As Mr. Brooke pointed out , in Chipping Sodbury, work on the dwelling was completed only 11 weeks prior to the commencement of work on the garages and the tribunal still found that the two had not been constructed at the same time.

11.        Mr. Brooke also referred us to the tribunal decision of S Whiteley v Commissioners of Customs and Excise (11292).  That case concerned the construction of a dwelling completed in October 1991 and an annexe including a garage upon which work began in August 1992.  The tribunal again concluded the two had not been constructed at the same time.

12.        It was Mr. Palmer’s submission that this was one project, albeit one which had taken some four years to complete and even though slowing to a crawl in stages.  He pointed out that nowhere in the Commissioners’ Notice 708 is a time limit put on construction and nowhere is it stipulated that work has to be continuous.  There are often delays in completion on sites where work has stalled or a party has gone bankrupt.  The spirit of the law, Mr. Palmer contended, was to prevent a buyer occupying a house and then adding a garage at a later date.  This is not what happened here.

Conclusions

13.        This case can be immediately distinguished from both Chipping Sodbury and Whiteley in that in both of these cases, the construction of the garages was under a separate planning permission.  In Whiteley, the chairman, Dr. Bryce, sets out a chronology from which it is apparent that planning consent for the main house was given on 30 June 1989 and “all works” were completed in August 1991.  It was not until October 1991 that a planning application for an annexe was put in, the consent being given in March 1992 and work beginning in August 1992.  In Chipping Sodbury, the original planning permission for the two dwellings without garages was granted in 1993, building beginning in July 1997 and the Certificate of Practical Completion being issued in December 1997.  Application for planning permission for the garages was made in January 1998 and granted in February 1998.  Work began in March 1998 and completed in May 1998.  In both of these cases there is a clear division between what we see as two entirely separate constructions.  In each case a dwelling house was built under one planning permission and was completed.  A separate planning application was then submitted and granted for the construction of the garages.  That distinction is to us critical.  In the present case we have one project, one development, one overall scheme all being covered by one single planning permission.  We accept that, for purely practical purposes, work on some part of the development had to begin rather sooner than Mr. Solomons would have wished.  The planning permission had to be kept alive, and therefore work was begun on the garage.  We accept that the structural work to the garage was completed in 2006 but thereafter for the next 18 months, work was done on a drip basis as and when Mr. Solomons could afford it.  Again we accept Mr. Nichol’s view that a certificate of completion is not conclusive, but to us it is highly indicative that even though the Building Control Officer maintained constant monitoring of the construction, he did not issue his completion certificate for the garage until October 2008.  Even then a number of mutual services had still to be installed.  It was always intended that the house and the garage should be one development.  Most importantly, the certificate of practical completion will, when given, attach to the entire development.  The house and garages will be treated together, as one.  We reject the Commissioners’ contention that the garage should be standard rated.  We find that for the reasons given above the dwelling and the garage were constructed at the same time and that zero rating therefore attaches to the garage.

14.        Having made this finding, there then arose the issue of apportionment.  Note 11 of schedule 8, group 5 specifies that:

“Where, a service falling within the description in items 2 or 3 is supplied in part in relation to the construction or conversion of the building, and in part for other purposes, an apportionment may be made to determine the extent to which the supply is to be treated as falling within item 2 or item 3.”

15.        The physical layout of the garage provides on the ground floor a triple garage with a locked store room alongside it.  Above, running the entire length of the first floor is a games area.  Mr. Brooke contended that only that proportion of the building that was used as a garage could attract zero rating.  In response, Mr. Plamer described the garage as being of a coach house design.  To be in keeping with the local surroundings, the triple garage had no doors.  It was therefore necessary to provide a lockable store which would house all the tools, machinery and equipment which one would generally house in one’s garage but which for security purposes could not be housed here.  He also submitted that the building had to be a two-storey building to be in scale with its surroundings, and the top floor was used as a games room only to make use of the space.  In Mr. Palmer’s terms, “this building is a garage, a very posh garage, but totally in keeping with the property and village”.  He put forward two separate submissions.  His first submission was that the entire building was the garage and should therefore attract zero rating.  If we were to reject that, he submitted that the lockable store should be included as zero rated in that it was only necessary to have the store to house equipment which would otherwise be garaged.  It was in effect a lockable extension of the garage.

16.        We reject both of Mr. Palmer’s contentions here.  We note that the correspondence with the Building Control Officer quite clearly refers to “detached garage with first floor games room”.  This is not just a garage in which the roof space is being used for games.  This is a building designed as a ground floor garage with a first floor games room.  We also reject the contention that the lockable store should be included within the definition of the garage merely because it is used to house garageable equipment.  It is not a garage; it is a lockable store, and the legislation is quite clear that only a garage attracts zero rating.

17.        In summary therefore our conclusion is that zero rating attaches to the treble garage and no other part of this building.  The Commissioners had raised an assessment on the basis that the entire building was to be standard rated and had suggested an apportionment based on floor space.  However, Mr. Palmer told us that the suggested apportionments were not agreed as the invoices upon which they were based contained elements of other work such as retaining walls.  It was agreed by both parties that we should therefore merely make a decision in principle, leaving the parties to agree an apportionment and the amount of tax due.  We agree to this but give the parties 28 days from the date of release of this decision within which they can re-apply to the tribunal if figures cannot be agreed.  If neither party applies within this period, the appeal will be taken as having been concluded.

18.        In accordance with our findings therefore, the appeal is allowed in part – in that we find that zero rating attaches to the garage but no other element of this building.

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.

LADY MITTING

JUDGE
Release Date:25 January 2011