United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19407

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Mr & Mrs Barnes v Revenue and Customs [2005] UKVAT V19407 (22 December 2005)

19407

VAT — DIY BUILDERS — residential conversion of a barn — invoices for supply of building materials in the name of the contractor instructed to carry out the conversion — Appellants assert that they paid for the materials and were entitled to a VAT refund — the contract between the Appellants and the contractor in the form of a written quotation and schedule of works and the manner in which the contract was carried out demonstrated that the materials were supplied to a contractor in his own right — the Appellants were not entitled to a VAT refund — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MR & MRS BARNES Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Michael Tildesley OBE (Chairman)

JT Brian Strangward

Sitting in public in Manchester on 9 September 2005 and 11 November 2005

The Appellants appeared in person

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

DECISION

The Appeal

The Appellants were appealing against the Respondents' decision dated 12 August 2003 to refuse part of a repayment claim made under the "Do it Yourself House Builders Scheme". The disputed amount totalled £7,957.

The Notice of Appeal dated 31 January 2004 set out the following grounds of Appeal:

"I was told it was not a problem originally that invoices were in Mr Nightingale's name and the invoices I am claiming for are not zero rated of VAT. I have given evidence beyond doubt that I have paid for these products. Mr Nightingale has now left the country and I am being penalised for a simple accounting mistake. I have been honest throughout and have given support to Customs and Excise in bringing a case against Mr Nightingale. I have in my position the invoices in question, of which I am due a refund of VAT".

The Issue

The Appellants hired a contractor, Mr Nightingale, to undertake a barn conversion at Atherton Hall. The Appellants submitted a claim under the "DIY House Builders Scheme" in the sum of £17,563.40. The Respondents refused to refund £11,751.79, of which £7,957 represented VAT charged on a large number of invoices addressed to Mr Nightingale.

The issue in dispute concerned the invoices in the name of Mr Nightingale. The Appellants were of the view that they paid for the goods named in the invoices and were, therefore, entitled to a repayment. The Respondents, on the other hand, contended that the goods were supplied to Mr Nightingale and not to the Appellants.

The issue to be decided is whether the goods named in the invoices were supplied to the Appellants or to Mr Nightingale. The Appellants would be entitled to a repayment of the VAT, if the goods were supplied to them.

The Evidence

We heard evidence from Mr and Mrs Barnes, the Appellants.

The Respondents provided the Tribunal with a bundle of documents.

The Facts Found

In March 2002 the Appellants purchased a derelict barn at Atherton Hall for conversion into family home for themselves and their five children with an annexe for Mr Barnes' parents. The Appellants were living in sub standard rented accommodation. Mr Barnes' parents sold their property to help the Appellants with the conversion. The barn had been used as a milk dairy. It was uninhabitable with no first floor. The barn required a new roof and replacement of all timbers.

The barn was not a listed building. It had planning permission for conversion to three dwellings. The Appellants obtained consent to alter the planning permission to one dwelling. Under the terms of the consent they were required to convert the barn sympathetically and retain the size of the existing openings.

Prior to the purchase the Appellants contacted two builders to carry out the conversion. They chose Mr Nightingale who recommended the architect for the project. On 7 March 2002 Mr Nightingale provided the Appellants with a written quotation of £161,404 for the conversion together with a schedule of works, which the Appellants accepted. Mr Nightingale stated in the quotation:

"We estimate to construct the above conversion as per the drawing provided, also all materials and construction works are to comply with current BSI standard and Codes of Practice, and to satisfy all building regulations".

Mr Nightingale provided a separate quotation for the construction of a single brick three car garage which was £9,000.

The schedule of works had a separate section for "materials not allowed for" which included the kitchen and bathroom fittings, tiles, flags to hallway and kitchen and internal finishings, paintings and decorating. The price of labour was not included for the flags.

Under the agreement Mr Nightingale required the Appellants to pay the price in four equal instalments at various stages of the project with the last payment made on completion of all the works and to the satisfaction of the local building control officer.

The Appellants knew that Mr Nightingale was not registered for VAT. The Appellants told the Tribunal that they instructed Mr Nightingale at the start of the conversion that any invoices should be in their name not his. The Appellants did not direct Mr Nightingale where to source his materials. Mr Nightingale took responsibility for ordering the materials.

The Appellants paid Mr Nightingale four lump sums comprising £35,000 cheque and £5,000 cash in accordance with the agreement. The cash was used by Mr Nightingale to pay his employees and sub-contractors.

At Christmas 2002 Mr Nightingale told the Appellants that the project costs had overran because of unforeseen and additional works. Mr Nightingale required an immediate extra payment of £27,000 to remedy the shortfall and a further £28,000 to complete the project. Mr Nightingale refused to come back on site unless he received these payments.

The Appellants reluctantly agreed to reimburse Mr Nightingale the immediate shortfall of £27,000, which was financed by increasing the advance on their "Buy to Build Mortgage", on condition that Mr Nightingale gave them all the invoices for building materials.

The Appellants, however, decided not to continue with Mr Nightingale's services and refused to pay him the further £28,000, even though the project was only two-thirds completed. The Appellants engaged other contractors to finish the conversion. The Appellants obtained invoices for the materials and work done in their own name from these contractors.

The invoices supplied by Mr Nightingale totalled £7,176. All the invoices were in Mr Nightingale's name. The delivery address stipulated on the invoices ranged from Atherton Hall Barn, Mr Nightingale's address and various depot addresses.

The Appellants moved into their new home in April 2003.

On 5 August 2003 the Respondents received a claim from the Appellants for a refund of VAT under the "DIY House Builders Scheme" in the sum of £17,563.40 for the barn conversion.

On 12 August 2003 the Respondents allowed a refund of £5,811.61. They disallowed £11,751.79. The amounts in dispute comprised within the £11,751.79 were the £7,176.21 as represented by the invoices in the name of Mr Nightingale and a second category of invoices totalling £781.06. The second category was originally refused because VAT should not have been charged as they were zero-rated supplies by contractors. The Respondents advised the Appellants to contact the contractors direct to arrange a repayment. It transpired at the Tribunal hearing that the supplies under the second category were not zero-rated but reduced-rated supplies because the conversion did not involve a listed building. The invoices, however, under the second category still fell foul of the Respondents' primary objection that they were in the name of Mr Nightingale. Thus the £781 was added to the £7,176 to make a total of £7,957 in dispute.

Reasons for Our Decision

The "DIY House Builders Scheme" puts DIY builders and converters in a broadly similar position to a developer selling a zero-rated property, by refunding them the VAT on their main construction or conversion costs. Section 35 of the VAT Act 1994 (1994 Act) sets out the legal requirements that must be met for a refund. Sections 35(1), 35(1A) and 35(1B) provide that a person is entitled to a VAT refund if:

(1) He carries out works consisting of a residential conversion.

(2) His carrying out of the works is lawful.

(3) His carrying out of the works is otherwise than in the course or furtherance of any business.

(4) VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works.

(5) He makes a claim for a refund.

Regulations made under Section 35(2) of the 1994 Act require a refund claim to be made on a prescribed form supported by documentary evidence.

Section 35(1C) of 1994 Act enables a person to claim a refund of VAT chargeable on services consisting in the work done by the contractor carrying out the residential conversion provided the contractor is not acting as an architect, surveyor or consultant or in a supervisory capacity. The provisions of section 35(1C) did not strictly apply to the Respondents' disputed decision on Appeal because at the time of the claim Mr Nightingale was not registered for VAT

The issue in dispute concerned requirement (4) of paragraph 22 above, namely that

"VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works".

The Respondents were of the view that the goods specified in the disputed invoices were supplied to Mr Nightingale in his own right not as agent for the Appellants. Mr and Mrs Barnes maintained that the goods were supplied to them.

The Appellants contended that they told Mr Nightingale that the invoices for the goods should be in their name. The fact that Mr Nightingale did not follow their instruction should not prejudice their claim for a refund. They now had the disputed invoices in their possession. They paid for the goods in their staged payments to Mr Nightingale. The goods were used in the conversion of the barn. Some of the invoices required the goods to be delivered direct to the Appellants' address at Atherton Hall Barn.

We, however, have to examine the Appellants' contentions in the context of the whole evidence. We have construed the written quotation provided by Mr Nightingale as requiring him to construct the barn and provide all materials except those explicitly not allowed for in the schedule of works for the agreed price of the conversion. We were satisfied that the written quotation formed the contract between Mr Nightingale and the Appellants. The Appellants' payments were in the manner defined in the quotation, four staged instalments of the agreed price. The Appellants did not reimburse Mr Nightingale for specific supplies of goods. The method of payment adopted by the Appellants suggested to us that they were paying Mr Nightingale for his services as a contractor rather than for the materials used in the barn construction. The Appellants exercised no direction over Mr Nightingale's purchase of the building materials detailed in the disputed invoices. Mr Nightingale was named in the invoices as the recipient of the supply of the building materials. None of the documents provided to us specify that Mr Nightingale was acting as the Appellants' agent in the purchase of building materials. Nor did those documents contain a clause requiring Mr Nightingale to purchase the materials in the name of the Appellants.

We consider that Mr Nightingale's written quotation accurately reflected the business relationship between the Appellants and Mr Nightingale. Our conclusion was supported by the Appellants' evidence about how they dealt with Mr Nightingale during the barn conversion. They made staged payments for the works carried out. They did not pay the suppliers of the building materials direct. They did not reimburse Mr Nightingale for supplies of specific materials. The Appellants did not demand copies of the invoices until Mr Nightingale's request for additional funds in December 2002. We consider that the evidence of the documents and of the actual dealings with Mr Nightingale undermined the Appellants' assertions that Mr Nightingale was acting on their behalf when purchasing the building materials. The Appellants supplied no documentary corroboration of their assertions.

We are, therefore, satisfied that the consideration paid by the Appellants to Mr Nightingale was for the composite supply of construction services and materials. The goods detailed in the disputed invoices were supplied to Mr Nightingale in his own right not as agent for the Appellants.

Mr Barnes expressed appreciation of the efforts of Mrs Rozario, the Officer who had immediate responsibility for the Appellants' refund claim. However, he felt aggrieved with the advice from the Respondents when he first telephoned them about the incorrect name on the invoices. He was told "not to worry, if you get Mr Nightingale to write a letter saying he was not VAT registered so would not be claiming VAT back on these products". Mr Nightingale refused to write a letter. Respondents' counsel, however, pointed out that the Officers on the advice line would have taken at face value the Appellants' information of the incorrect name on the invoices. It was the Respondents' case in this Appeal that the correct name of Mr Nightingale was on the invoices. Secondly if the Respondents gave refunds in such circumstances it would be under their discretionary care and management powers not under section 35 of the 1994 Act. The Tribunal had no appellate jurisdiction over the Respondents' exercise of their discretionary powers.

Mr Barnes also complained about the complexity of the legal provisions dealing with refunds under the "DIY House Builders Scheme". Mr Barnes relied upon an earlier edition of the Respondents' VAT Notice 719 dealing with such refunds. He considered that he met the requirements of the Notice. We have some sympathy with Mr Barnes' position, however, we consider that paragraph 5.2 of the earlier notice clearly stated that the goods must have been supplied to the DIY builder (the Appellants) and that the name and address of the DIY builder must be on invoices if the value was more than £100.

We, therefore, dismiss the Appeal because the goods were supplied to Mr Nightingale not to the Appellants. We make no order for costs.

We did not consider the question about whether the Appellants could make a claim under section 35(1C) in respect of VAT chargeable on services consisting in the work done by the contractor. This did not form part of disputed decision under Appeal because at the time of the original refund claim Mr Nightingale was not registered for VAT. Also the Respondents were under the impression as a result of a letter written by Mr Barnes on the 27 July 2004 that the barn was a listed building, in which case the works done by the contractor would have been zero-rated for VAT purposes.

We learnt at the hearing that the Respondents with the assistance of Mr Barnes had registered Mr Nightingale for VAT. The registration has been backdated and covered the period of Mr Nightingales' supply to the Appellants. Also at the second hearing on 11 November 2005 the Respondents accepted the contents of a letter dated 7 October 2005 from the Appellants' architect, Cork Toft Partnership Limited, which confirmed that the barn was not a listed building. Thus Mr Nightingale's supply of construction services to the Appellants was not zero-rated for VAT purposes but charged at the reduced rate of VAT. Where, as in this case, the contract between the Appellants and Mr Nightingale was silent about VAT, the price paid is deemed to be VAT inclusive. This then raises the question about whether the Appellants are entitled to claim a refund under section 35(1C) of the 1994 Act for the VAT included in the consideration paid to Mr Nightingale. We cannot consider this issue because it did not form part of this Appeal and the Appellants have not made a claim under section 35(1C). Respondents' counsel very fairly alerted the Appellants to the possibility of making such a claim and provided them with an address. Counsel, however, cautioned the Appellants about the likelihood of success, in particular the time limits have expired for making a claim and that there was no VAT invoice from Mr Nightingale. The Respondents, however, do have a discretion under the care and management powers to entertain such an application.

MICHAEL TILDESLEY

CHAIRMAN
Release Date: 22 December 2005

MAN/05/0077