United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18536

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McMillan & Anor v Customs & Excise [2004] UKVAT V18536 (17 March 2004)

INPUT TAX – appeals against disallowance — building project — flats to single houses — not a listed building nor new build but conversion, reconstruction or alteration — and not thus zero-rated — appeals dismissed

MANCHESTER TRIBUNAL CENTRE

ROSS McMILLAN

CEDAR HOMES (UK) LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mrs E Gilliland (Chairman)

Mr D Wenn

Sitting in public in Birmingham on 16 December 2003

The Appellant in person in the first appeal and as director of the Appellant company in the second appeal

Mr Tariq Sadiq of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

DECISION

There are two appeals before the Tribunal. The first is that of Captain Ross J.S. McMillan and the second is that of Cedar Homes (UK) Limited of which Captain McMillan is a Director.

The matter to be considered involves a building project relating to three properties namely numbers 65, 71 and 72 Wheeleys Road, Edgbaston, Birmingham. The issue is as to whether input tax may be re-claimed in respect of work done on these properties. The disputed decisions of the Commissioners are first in respect of the appeal of Captain McMillan decisions to disallow his claim for input tax in the sum of £15,265.87, the decisions being dated 15 July 2002 and 16 August 2002. The disputed decision of the Commissioners in respect of the appeal of Cedar Homes (UK) Limited is to disallow their claim for input tax in the sum of £4,078.34 dated 21 August 2002. The issue concerns the nature of the work done at these three properties and whether the work was zero-rated. In his notice of appeal dated 17 August 2002 the grounds for such appeal by Captain McMillan are stated to be:

"The payment has not been allowed because the building development has been deemed a renovation therefore does not qualify. I submit that part of building is listed (Article 4 direction on front of buildings equal to a Grade II listing which would qualify plus the whole of the internal structure apart from the "listed" front façade has been effectively replaced including new build to rear qualifying as new construction. All the internal walls and roof including floors have been replaced as the buildings have been changed from multi-occupancy flats to single dwellings. They thus qualify as "new build" and VAT input is claimable".

The grounds of appeal in respect of the Company's appeal dated 3 September 2002 and submitted by Captain McMillan as Director are:

"I have demonstrated that the relevant property renovations have been totally internally demolished and parts of the buildings are effectively listed so that although they are "renovations" they still qualify for repayments on VAT inputs as was shown at registration".

Captain McMillan became registered for VAT with effect from 1 March 2001 and Cedar Homes (UK) Limited with effect from 1 January 2002.

The relevant legislation is contained in the Value Added Tax Act 1994 (the Act). Section 24 (1) (a) defines input tax in relation to a taxable person as:

"VAT on the supply to him of any goods or services being… goods or services used or to be used by him for the purpose of any business carried on or to be carried on by him".

There is no dispute that VAT was paid by the Appellants on goods or services used for the purposes of their businesses.

Section 25 (2) of the Act provides that:

"a taxable person is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under Section 26, and then to deduct that amount from any output tax that is due from him". If no output tax is due at the end of the accounting period, then under Section 25 (3) the amount of any credit is to be refunded by the Commissioners. The amount of input tax to which a person is entitled to credit under Section 25 is dealt with in Section 26 which provides that so much of the input tax on supplies acquisitions and importations in the period as are allowable by or under regulations as being attributable to taxable supplies which are made by a taxable person in the course or furtherance of his business is to be credited. If work or services provided by the Appellants are zero rated then the Appellants may recover as input tax any tax charged on supplies made to them for the purpose of an onward zero-rated supply.

So far as zero-rating is concerned Note 1 to Group 6 of Schedule 8 provides for zero rating of "the first grant by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site. A protected building is defined in Note 1 as:

"Protected Building". "A building which is designed to remain as or become a dwelling or number of dwellings or is intended for use solely for a relevant residential purpose or a relevant charitable purpose after the reconstruction or alteration and which, in either case, is –

(a) a listed building, within the meaning of –

(i) The Planning (Listed Buildings and Conservation Areas) Act 1990 (the 1990 Act); or

(ii) The Planning (Listed Buildings and Conservation areas) (Scotland) Act 1997 or

(iii) The Planning (Northern Ireland) Order 1991; …

Item 1(a) of Group 5 of Schedule 8 to the Act provides for zero rating in relation to "the first grant by a person constructing a building".

(i) designed as a dwelling or number of dwellings or

(ii) intended for use solely for relevant residential … purpose … of a major interest in or in any part of, the building, dwelling or its site". Note 16 to Group 5 of Schedule 8 of the Act provides that :

"For the purposes of this Group, the construction of a building does not include –

(a) the conversion, re-construction, or alteration of an existing building ; or

(b) any enlargement of, or extension to, an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings ; or

(c) subject to Note 17 below, the construction of an annex to an existing building".

Note 18 to Group 5 of Schedule 8 of the Act provides that:

"A building only ceases to be an existing building when:

(a) demolished completely to ground level; or

(b) the part remaining above ground level consists of no more than a single façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission"

The appeals are in relation to building work carried out after a notice issued by Birmingham City Council Planning Department on 20 April 2001 relating to numbers 65 to 72 Wheeleys Road. This was a direction under Article 4(2) of the General Permitted Development Order 1995 ("the Order") restricting the general permission conferred by Article 3 of the Order in relation to 8 properties within the Edgbaston conservation area. The effect of the direction was that planning permission was required before 10 types of alterations specified could be made to the properties. Mr. Alan Tyler the Appellant's witness at the hearing expressed the view that the Article 4 direction was similar to the listing of a building. As to the work done he said that the plans showed a refurbishment and renovation. On site however because of the article 4 direction certain structures had to remain which were necessary to keep up the front façade. Although the rear façade had been referred to in the Order the Council had not been concerned about it and it had been removed. The front façade however was preserved. Presenting his case Captain McMillan stated that the properties were not demolished to a new building site. "Façade at the front was as it had been with the rear walls out and spine walls retained". Mr. Tyler referred also to the service road at the rear being a highway and as there was thus a restriction on building at both the front and the rear the whole building was protected.

The legal position is that the two sets of circumstances could apply in the present case and which would result in input tax being re-claimable. The first would be if the building were a listed building within Group 6 ; the second would be if the building were a new building within Group 5. It is a question of fact whether the work carried out amounts to the construction of a building within Group 5. The 3 buildings each contained 3 or 4 residential flats before the works were carried out. After the works had been carried out they were each single dwelling houses and they were sold as such by the Appellants.

We have heard the submissions of Captain McMillan as the Developer and the evidence given by his witness Mr. Alan Tyler who has told us that he has a Masters Degree in planning and whilst not an Architect says that he has architectural experience. It is clear to us that the properties are not listed buildings within the meaning of the 1990 Act. This has been confirmed by Mr. David Scott Walters a section assistant with the Council. A listed building is defined in Section 1(5) of the 1990 Act as a building which is for the time being included in a list compiled or approved by the Secretary of State. Nos. 65, 71 and 72 Wheeleys Road Edgbaston Birmingham are not included in any such list. Mr. Tyler in cross-examination also accepted that the buildings had not been formally listed.

The Tribunal has been referred by Captain McMillan to the said direction from Birmingham City Council made under Article 4 (2) of the General Permitted Development Order 1995 on 20 April 2001. That direction however merely restricts the development which may be carried out without planning permission pursuant to Article 3 of the Order. It does not amount to the listing of the buildings as buildings of special architectural or historic interest under the 1990 Act. It must follow in our view that the 3 houses concerned in these appeals are not protected buildings within Group 6 in Schedule 8 to the Act and a claim to zero rating pursuant to Group 6 must fail.

The other ground on which a claim to zero rating has been seen based is under Group 5. In order to qualify under Group 5 the Appellants must have constructed a building and not merely have converted, reconstructed or altered an existing building as Note 16 excludes such works from the concept of the construction of a building. Further Note 18 provides that a building "only ceases to be an existing building when (a) demolished completely to ground level; or (b) the part remaining consists of no more than a single façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission".

There is no dispute that the front elevations of the 3 houses were left standing because of the Article 4 direction. It is also clear however that the whole of the remainder of the 3 buildings was not demolished. As Captain McMillan observed in the course of his closing submissions the spine walls had to be retained in order to hold up the front façades. Captain McMillan also did not suggest that the 3 houses had been rebuilt, or that the buildings were new buildings. Prior to the carrying out of any work a report dated 4 March 2001 on the condition of 65, 71 and 72 Wheeleys Road was obtained by Captain McMillan from Ian M Wright & Associates, a firm of Structural Engineers. This report indicated the presence of damp and subsidence in all 3 properties and that the roofs were in poor condition. Re-pointing was required to all external walls. A considerable amount of woodwork was also rotten and required replacement. 72 Wheeleys Road was in the worst condition. The side gable wall had bowed and needed to be demolished and re-built and the rear wall required to be underpinned as did the walls to the wing building and the wall between the rear lounge and the hallway. It is not entirely clear precisely what work was actually carried out but we are content to assume that all the defects referred to this report have been addressed and remedied. The roofs of all 3 properties have been replaced and work carried out to the drains. In addition the rear façade of 71 and 72 (although strictly subject to the Article 4 direction) has been replaced. Apart from the side gable wall to No. 72, however, the side walls were not demolished but were left in place to support the front façade. A new dining room extension was constructed at the rear of No. 65 and alterations were carried out at first floor and second floor levels to form a shower/WC en suite and bathroom. An extension was also built at the rear of No 71. Plans submitted for building regulation approval have been produced and although there has been a suggestion that more extensive work than is shown thereon was carried out it was the evidence of Mr. Paul Moriarty, a senior building control surveyor with Birmingham City Council who inspected the works for building consent purposes after they had been completed, that the works carried out were in the nature of works of repair alteration and extension. We accept that evidence. It is also in line with that of Mr. Tyler and indeed with what Captain McMillan has himself said. We are satisfied and find that the works are works of conversion reconstruction or alteration of an existing building within Note 16 of Group 5 and are thus not zero-rated.

Accordingly we dismiss the appeals. Captain McMillan has invited us to have regard to the policy of encouraging the provision of suitable accommodation but we are bound to apply the law as laid down by Parliament and we do not have any power to treat as a listed building something which has not in fact been listed. The Commissioners have not sought costs and we make no direction as to costs.

COLIN BISHOPP
CHAIRMAN

Release date:

MAN/02/0585

MAN/02/0612

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