Sheila Anne Searle v Revenue & Customs [2011] UKFTT 679 (TC) (26 October 2011)
[2011] UKFTT 679 (TC)
TC01521
Appeal number: TC/2010/6491
VAT –
DIY builders scheme – construction of building comprising two residential units
– s 106 agreement prohibiting separate disposal – building not in accordance
with planning permission – conditions for DIY relief not met
FIRST-TIER TRIBUNAL
TAX
SHEILA
ANNE SEARLE Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Mrs B Mosedale (Tribunal Judge)
Mr
J Robinson (Tribunal Member)
Sitting in public at Barrack
Block, Southampton on 11 October 2011
Mr S Taylor of Pearce Taylor
Taxation for the Appellant;
Mr H O’Leary, Officer of HMRC,
for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. Mrs
Searle, the Appellant, made a claim on 15 January 2010 for a refund of VAT of
£25,260.93 under the DIY Builders scheme provided for in s 35 Value Added Tax
Act 1994 (“VATA”). HMRC initially refused the claim on 22 January. After Mrs
Searle provided more information on 1 February, it was refused again on 12
February 2010. Following a review, HMRC upheld their decision and notified
this to Mrs Searle by letter on 9 June 2010. The Appellant’s then
representative wrote to HMRC with further information by letter of 20 July but
HMRC did not revise their decision.
2. The
Appellant lodged her appeal on 10 August 2010. This appeal is therefore out of
time but in the circumstances HMRC took no objection to this and we formally
admitted the appeal.
The facts
3. The
facts were not in dispute and we accept the evidence of Mrs Searle.
4. Mrs
Searle bought a property on Botley Road Southampton adjacent to a house she
already owned and occupied. Her intention was to provide accommodation for her
adult daughters. It was a very long term project. The property was acquired
in the early 1980s and vacant possession of it obtained in the mid-1990s.
Planning permission was not obtained until 7 December 2000. Completion of
construction did not occur until December 2009.
5. Mrs
Searle had two daughters and, as it was a large plot, wanted to build two
separate or semi-detached houses on it. The Council would not agree to give
planning permission for two units of accommodation.
6. Eventually
planning permission was forthcoming for “Erection of chalet style bungalow to
provide two residential units for two related families.” The planning
permission contained some 13 conditions, none of which are relevant to this
appeal. However, as is standard, what it gave permission for was construction
“in accordance with your application and the plans and particulars submitted in
connection therewith.”
7. The
plans submitted with the application show that essentially two residential
units in a single building would be constructed. The East of the property at
the rear ground floor comprised an open plan kitchen, dining and living room
with two bedrooms, two bathrooms, a utility and store room. The West of the
property, at the front ground floor comprised an entrance lobby, utility and
cloakroom with an open plan kitchen, dinning and living area. There were
stairs which gave access to three bedrooms and two bathrooms. The residential
unit at the back had, Mrs Searle estimated about 1/3rd of the floor
space while the residential unit at the front had about 2/3rds of
the total floor space.
8. The
intended void above the open plan area of the rear (East) unit which was shown
on the plans was converted into a third bedroom for the rear unit with a flight
of stairs rising from the open plan area below.
9. The
plans showed that there was to be an internal access door between the two
residential units. There was a door shown from the store room in the rear unit
into the open plan area of the front unit. Mrs Searle’s evidence, which we
accepted, was that this doorway had been constructed and existed for the first
7 years of construction. However, when the rear unit was ready for occupation
and her daughter Kerry moved in with her family, the door had been blocked up.
This was to prevent Kerry’s young children gaining access to the front unit
which was at that time still a building site. Three years later the front unit
was completed and Mrs Searle’s other daughter, Victoria, moved in with her
family but the doorway was left blocked up. We were shown photographs and
there is now no sign that there was ever a door between the two units. It has
been plastered over.
10. Mrs Searle was
not sure whether or not the council knew that the interconnecting door was not
part of the building as finally constructed: they had certainly not taken any
enforcement action in respect of it.
11. As a condition
for obtaining planning permission, Mrs Searle entered into a s106 agreement
with her local authority. This included a covenant by Mrs Searle that “the
Replacement Dwelling” would only be occupied as two independent dwellings by
herself and her family (as defined) and that if either or both ceased to be
occupied by her self and members of her family it would from then on only be used
as a single dwelling; and that neither dwelling would be let or sold
separately.
The law
12. Section 35 of
the Value Added Tax Act 1994 (“VATA”) provides:
“(1) 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 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 that person the amount of VAT so chargeable.”
13. Section 35(1A)
sets out what are the “works” to which section 35(1)(a) applies.
“(1A) The works to which this section applies are –
(a) the construction of a building designed
as a dwelling or a 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.”
….
(4) 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.”
14. The Appellant
constructed a new building so (if it was within any section) it was within s
35(1)(a). To be within this section Mrs Searle had to construct a building
designed as a dwelling or as a number of dwellings.
15. The phrase
“designed as a dwelling” is one with a statutory definition. This is contained
in the notes to Group 5 of Schedule 8, which under s35(4) applies as much to
the DIY Builders scheme as it does to Group 5. Note (2) to Group 5 of Schedule
8 provides as follows:
“A building is designed as a dwelling or a number of
dwellings where in relation to each dwelling the following conditions are
satisfied-
(a) the dwelling consists of self-contained living
accommodation;
(b) there is no provision for direct internal
access from the dwelling to any other dwelling or part of a dwelling;
(c) the separate use, or disposal of the dwelling
is not prohibited by the term of any covenant, statutory planning consent or
similar provision; and
(d) statutory planning consent has been granted in
respect of that dwelling and its construction or conversion has been carried
out in accordance with that consent.”
Appellant’s submissions
16. The Appellant’s
submissions were the property that was erected was a single dwelling which
could be occupied by two families. Mr Taylor’s view was that it was the same
as constructing a new house which happened to incorporate a granny annex.
17. Further it was
clear that the council would not give planning permission for two separate
houses and so it should be seen as a single dwelling. In any event, if the
planning permission and s106 agreement were read, it seems the Council itself
in some places referred to it as a single dwelling. Mr Taylor pointed to condition
10 of the planning permission which said “in front of the proposed dwelling….”
Decision
18. The word
“dwelling” itself is not defined in the legislation. We take it that it has
its ordinary meaning as somewhere people live. It is explicit in the legislation
that a dwelling must be self-contained living accommodation and implicit in the
legislation that each unit of self contained living accommodation is a separate
dwelling. If this were not the case, Note (2)(b) and (c) would be
meaningless. In other words, a “dwelling” is a single unit of self contained
living accommodation: more than one unit of self contained living
accommodation is a collection of dwellings (such as a block of flats).
19. Mr Taylor
considers that the building should be seen as a single dwelling. He bases this
on his assertion that the Council gave permission for, and regarded it as, a
single dwelling.
20. We are unable to
agree that the Council did regard it as a single dwelling. On the planning
permission the heading describes it as “erection of chalet style bungalow to
provide two residential units for two related families” and thereafter, apart
from the quote from condition 10, describes it as “each dwelling” (condition
6), “the dwellings” (condition 12) and “either of the dwellings” (condition
13). The reference in condition 10 to “dwelling” , taking the above consistent
reference to “dwellings” may simply be an error or it may be because it is
referring to the front of the property onto which only one of the residential
units faced.
21. So far as the
s106 agreement is concerned, Mr Taylor submitted that the Council saw the
building as a single dwelling as in this s106 agreement they described it as
“the Replacement Dwelling.” We are unable to agree. “The Replacement
Dwelling” was merely a defined term in the agreement. It was the definition
given to the “replacement dwelling…that will initially be constructed so as to
form two separate but inter linked dwellings.” We find that the council saw
the building as comprising two dwellings while it was occupied by Mrs Searle
and her family up to the point they decided to occupy it as a single dwelling
or sold it on to new owners, when it had to be used single dwelling.
22. In any event,
we consider that the meaning of “dwelling” for the purpose of planning is not
necessarily the same as its meaning for the VAT Act. As far as the VAT Act at
least is concerned it takes its normal meaning, although “designed as a
dwelling” has a defined meaning. And as we have said the normal meaning of
“dwelling” would be a place of residence, or a residential unit.
23. So far as the
VAT Act is concerned we find that what Mrs Searle built comprised two
dwellings. Of course they shared a party wall but they were two independent
units of residential accommodation and they were occupied as such. They could
be compared to a block of flats with shared car parking spaces. But the actual
domestic accommodation comprised two entirely separate and independent areas,
each with their own entrance, living, cooking, dining, washing and sleeping
facilities.
24. Ordinarily
either or both units would be eligible for DIY builders’ VAT relief as long as
they were erected otherwise than in the course of a business (as these were).
However, Condition (c) of Note (2) of Group 5 to Schedule 8 prevents relief
where the separate use, or disposal of the dwelling is prohibited by the term
of any covenant, statutory planning consent or similar provision. The separate
disposal of these two dwellings was prohibited by the s 106 agreement. A s 106
agreement, being part of the process by which planning permission is obtained
and without which would not have been granted as in this case, is both a
“covenant” and “similar provision”. Therefore, the prohibition in the s106
agreement on the disposal of one of the dwellings without the other means that
neither of the two dwellings which comprised the building were eligible for
relief.
25. The claim for
relief also fails under condition (b) of Note (c) as we find that there is provision
for direct internal access from either of the dwellings to the other. This is
because, although the door was blocked and sealed over before the building was
completed, nevertheless the building for which planning was given included that
doorway and it could be legally reinstated at any point without the need for
permission and indeed the council might take enforcement action to have it
reinstated. There is therefore “provision” for internal access even though it
currently does not exist.
26. We note that our
decision would have been the same even if the doorway had not been closed up
before construction was completed. If the doorway existed, that would not
change our view that what was constructed were two dwellings. Although we
agree with Mr Taylor that there is a single dwelling where within a dwelling’s
confines an extra self contained area is created such as a granny or nanny
annex, this is not what happened here. It may simply be a matter of degree but
neither property could be said to be an annex to the other. Both were three-bedroom
flats with kitchen, dining, and living accommodation. Neither was built as an
annex and neither were used as an annex. Even if they had an internal linking
door this would not convert them into a single dwelling house.
27. Even if we were
wrong to say that the building constructed by Mrs Searle comprised two
dwellings, Mrs Searle would still not succeed in her appeal. This is because
whether the building is seen as one or two units, condition (d) of Note (2) to
Group 5 is failed. This condition provides that the construction of the
building has to be carried out in accordance with the planning consent.
Permission was given for construction in accordance with the attached plans:
the attached plans showed a connecting door. That door was not there when the
construction was completed and the building was therefore not constructed
entirely in accordance with the planning consent. It may be that the Council
may never take enforcement action against Mrs Searle but that is a different
question: it may be a relatively minor infringement but it is still a failure
to abide by the consent. And the claim therefore fails on this ground too.
28. It is not
relevant that Mrs Searle may have had a very good reason for blocking up the
door (the safety of her grandchildren). The only proper way of blocking up the
door would have been to apply to the Council for a change to the planning
consent. Although, as we have said, that would not have enabled her to obtain
VAT relief as we have found that the claim fails in any event because the
property was two dwellings the separate disposal of which was prohibited.
29. We sympathise
with Mrs Searle but we are bound by the legislation. If Mrs Searle had
constructed a single dwelling and assuming the planning consent was complied with,
DIY builders’ relief would probably have been available. Because she wished to
provide for both daughters and because the Council would not permit two
dwellings, unfortunately the law applies in such a way to deny her relief for
either of the two units.
30. We dismiss the
appeal.
31. 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.
TRIBUNAL JUDGE
RELEASE DATE: 26 October 2011
