United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19224

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Milligan v Revenue and Customs [2005] UKVAT V19224 (2 September 2005)

19224

VAT – DIY BUILDERS SCHEME – Appellant constructed a bungalow at the rear of her home for use as self-contained accommodation for her elderly mother – planning permission prohibited the separate use and independent disposal of the bungalow – the bungalow did not meet the requirement of a building designed as a dwelling (Note 2 Group 5 Schedule 8 of the Value Added Tax Act 1994) – Appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

MRS DELPHINE MILLIGAN Appellant

- and -

HM REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

BOB GRICE LLB (HONS) (Member)

Sitting in public in Birmingham on 28 July 2005

David Milligan for the Appellant

Sara Williams, Counsel instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The Appeal

The Appellant was appealing against the Respondents' decision of 5 October 2004 disallowing the sum of £4,186.11 by way of refund under the "Do it yourself (DIY) builders scheme".

The Appellant's ground of Appeal was that

"The property is a completely new independent dwelling house and such should be zero-rated. It was built for my 82 year old mother to avoid the necessity of local authority care in the future".

The Issue in Dispute

To obtain a refund of VAT the Appellant has to establish on the balance of probabilities that the building constructed met the requirements of "designed as a dwelling" as defined by Note 2 Group 5 Schedule 8 of the Value Added Tax Act 1994. The Respondents were of the view that those requirements were not met because the planning permission for the building prevented its separate use and disposal.

The Evidence

We heard evidence from Mr Milligan, the Appellant's husband. We received bundles of documents from the parties.

Mr and Mrs Milligan to their great credit have overcome a torrid time during the last 12 years as a result of events outside their control.

In 2000 Mr and Mrs Milligan purchased 176 Long Street, Atherstone, a two storey four bed-roomed Victorian house as their family home. Mrs Milligan wished to care for her elderly mother who had recently lost her husband. Mr and Mrs Milligan applied for planning permission to extend 176 Long Street to provide accommodation for Mrs Milligan's mother. North Warwickshire Borough Council, the local planning authority, advised them that the proposed extension was too large and out of character with 176 Long Street. Instead, the Council's Consultant Architect suggested that the existing outbuildings be used to create an annexe in which Mrs Milligan's mother could reside.

On the 20 November 2000 Mr and Mrs Milligan obtained planning permission with conditions for a development at the rear of 176 Long Street. The development involved the construction of a one bed-roomed bungalow, having a separate sitting room and kitchen with a single garage which adjoined the existing garage for 176 Long Street. There was no provision from the bungalow for direct internal access to 176 Long Street. The bungalow provided self-contained living accommodation for Mrs Milligan's mother.

The planning permission was subject to seven conditions. Condition four provided that

" The accommodation hereby approved shall be occupied solely in connection with, and ancillary to the main dwelling at 176 Long Street, Atherstone, and shall not be occupied as an independent dwelling house".

The reason for imposing the condition was to prevent unauthorised use of the property.

On 17 March 2005 Jeff Brown, Planning Control Manager for North Warwickshire Borough Council, wrote to the Respondents about planning condition four. He said that

"The condition was attached because it was considered that there was insufficient amenity, private and car parking space for the accommodation to be occupied by an independent household. Therefore the occupation was restricted to be an annexe to the main house at 176 Long Street. The condition in effect restricts the subsequent disposal of that annexe as a separate independent residential unit".

Mr Maxey, Principal Solicitor for The Borough Council, advised Mr and Mrs Milligan that the Council's Planning Division would not support the removal of condition four because of the very limited space available to provide for areas of private amenity space.

Mr and Mrs Milligan were required to pay a fee of £195 for the planning application. North Warwickshire Borough Council calculated this fee on the basis that the planning proposal was for a new dwelling house rather than an extension of an existing dwelling.

Mr and Mrs Milligan with the help of sub-contracted labour built the bungalow. They purchased the building materials, which were incorporated in the construction. The bungalow was completed in August 2003. Mrs Milligan's mother was now in occupation and thoroughly enjoyed living there.

The bungalow was separately assessed from 176 Long Street for Council Tax.

The bungalow was under the legal title of 176 Long Street, which was owned by Mr and Mrs Milligan.

The Reasons for Our Decision

Mr and Mrs Milligan were aggrieved about the actions of North Warwickshire Borough Council. Their preferred choice was to extend their existing property, which would have been less costly than the bungalow. They were required to pay an additional planning fee on the basis that the bungalow was a new dwelling house. Mr and Mrs Milligan also considered that support should be given to those people who care for their elderly parents. Taking all these circumstances into account they believed that there was something very wrong with the VAT law if they could not recover the VAT on the building materials, which they incurred in the construction of the bungalow.

We do not have the authority to deal with Mr and Mrs Milligan's grievance with North Warwickshire Borough Council or their concerns about support for carers of elderly relatives. Our responsibility is to decide whether they have met the legal requirements for obtaining a refund of VAT under the DIY builders scheme.

Section 35 of the Value Added Tax Act 1994 places the "do it yourself" house builder in broadly the same position as the person who buys a dwelling from a developer. Essentially Mr and Mrs Milligan were entitled to recover the VAT paid on the building materials incorporated in the bungalow if they satisfied the following requirements:

(1) They carried out the construction of a building designed as dwelling.

(2) The construction was lawful and otherwise than in the course or furtherance of any business.

(3) VAT was chargeable on the supply, acquisition or importation of any goods used by them in the construction of the bungalow.

The Respondents accepted that requirements 2 and 3 above were met but disputed whether the bungalow was designed as a dwelling which must satisfy the following conditions:

(1) The dwelling consists of self-contained living accommodation.

(2) There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling.

(3) The separate use, or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision

(4) 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.

The Respondents agreed that Mr and Mrs Milligan met conditions 1, 2 and 4 but not condition 3.

We considered the wording of condition 4 to the planning permission dated 20 November 2000 which stated that

"The accommodation hereby approved shall be occupied solely in connection with, and ancillary to the main dwelling at 176 Long Street, Atherstone, and shall not be occupied as an independent dwelling house".

We concluded from the wording of condition 4 that the planning permission for the bungalow prohibited its separate use and also its disposal as an independent unit from 176 Long Street. The condition clearly made the bungalow ancillary and connected with Mr and Mrs Milligan's home. Mr Brown, Planning Control Manager for North Warwickshire Borough Council, confirmed in his letter of 17 March 2005 that the condition prohibited a subsequent disposal of the bungalow as an independent residential unit. We, therefore, find that the bungalow was not designed as dwelling within the meaning of Note 2 Group 5 Schedule 8 of the Value Added Tax Act 1994.

Respondent's Counsel referred us to two decisions of the VAT and Duties Tribunal, (Commissioners of Customs and Excise v Nick Hopewell-Smith [2000] VAT Decision Number 16625 and Commissioners of Customs and Excise v Paul Henry Wiseman [2001] VAT Decision Number 17374) which gave conflicting interpretations of the phrase "separate use or disposal of the dwelling" in Note 2 Group 5 Schedule 8 of the Value Added Tax Act 1994. The Tribunal in Nick Hopewell-Smith considered that the phrase was expressed in the alternative. Thus the Appellant would succeed with his Appeal if the planning permission only prohibited either separate use or disposal. The Tribunal in Paul Henry Wiseman reached the opposite conclusion in that the Appellant would fail in his Appeal if the planning permission prohibited either separate use or disposal. This dispute is not relevant to this Appeal because of our finding on the facts that the planning permission for the bungalow prohibited its separate use and its separate disposal.

We dismiss the Appeal and make no order for costs.

MICHAEL TILDESLEY

CHAIRMAN

Release Date: 2 September 2005

MAN/04/0718