United Kingdom VAT & Duties Tribunals Decisions

Cartagena v Revenue and Customs [2005] UKVAT V19454_2 (13 February 2006)

19454

DIY SCHEME — conversion of barn into dwelling — condition in planning permission restricting to ancillary accommodation — construction of Note 2(c) to Group 5 of Schedule 8 of VATA 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

GILL CARTAGENA Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Alban W Holden

Sitting in public in Manchester on 13 December 2005

Mr Ian Heptinstall for the Appellant

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

© CROWN COPYRIGHT 2006


 


DECISION

Appeal

1. The appeal heard by the tribunal was that of Gill Cartagena (the Appellant) of Barncrest Dark Lane, Kingsley, Cheshire against a decision of the Commissioners on review to uphold the decision to disallow to the Appellant a refund of VAT in the sum of £9632.29 on building supplies which she had claimed under the Do It Yourself (DIY) Builders and Converters Refund Scheme. The Appellant gave notice of appeal to the tribunal on 11 July 2005.

Legislation

2. The relevant legislation for the refund of VAT to persons constructing certain buildings is in s.35 of the Value Added Tax Act 1994 (as amended) and the VAT Regulations 1995 (SI 1995/2518) Regulations 200 and 201.The Notes to the VAT Act Schedule 8 Group 5 (as amended) provide definitions and conditions. Notice 719 issued by the Commissioners sets out who can make such a claim and in what circumstances. A residential conversion is one of the works that is eligible. Section 35 (1) (D) defines this:

"For the purposes of this section works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building, or a non-residential part of a building, into-

(a) a building designed as a dwelling or a number of dwellings".

It is provided in s.35(4) that:

"The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group…".

In determining what is a qualifying building the term "building" is given its ordinary and natural meaning. Certain conditions must however be satisfied as set out in (2) of the Notes that –

"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 the dwelling and its construction or conversion has been carried out in accordance with that consent." However, where the actual deviations from the approved plans are trivial, they may be disregarded.

Facts

3. The facts and the description of the building were not in dispute between the parties. Mr Heptinstall, a friend of the Appellant who presented her case for her, explained that the Appellant and her children had returned from Spain to live in the United Kingdom and it had been agreed with her parents Mr and Mrs Evans that a barn in the curtilege of their property Rose Bank Farm, Dark Lane, Kingsley (a property within the green belt) would be converted to provide what Mr Heptinstall insisted was to be separate family living accommodation. Ms. Cartagena would however still be at hand to help her parents. Planning permission had been obtained. We were told that the Appellant was always aware that the planning consent would require a relationship with Rose Bank Farm. The work had been managed and undertaken by the Appellant with the assistance of a number of friends and various tradesmen. This had been substantially completed in December 2004 and the VAT refund claim submitted on 14 December 2004. The barn conversion now known as Barncrest was treated by the local authority as a separate building for Council tax and electoral purposes. There was separate vehicle access and parking and separate services. A part of one wall was common in that it was part of the garage wall of the principal house but the rest of the wall belonged to Barncrest and was comprised within its title. Although the planning permission had been taken out in the names of the Appellant's parents, Mr and Mrs Evans, and both Rose Bank Farm and the barn had belonged to them Barncrest had since been transferred and was the Appellant's property with title registered in her favour at HM Registry.

Planning Permission

4. We were referred to the grant of the full planning permission dated 30 June 2003 from Vale Royal Borough Council. The particulars of the development were "change of use of barn and outbuildings to granny flat". In fact Mr and Mrs Evans had remained in the main house and the conversion was not as such used as a granny flat but the Commissioners did not take any issue on this point. There was however a condition imposed which was central to the appeal namely:

"1. The change of use hereby approved shall not be used except for providing ancillary accommodation in association with the main use of Rose Bank Farm as a dwellinghouse."

The reason for this condition given by the planning authority was: "To ensure that the proposed development remains ancillary to the principal residential use of the site".

Issue

5. The issue before the tribunal is whether the requirement in the planning permission that the barn accommodation be "ancillary" to the principal accommodation has the effect that Note 2 (c) of Group 5 of Schedule 8 of the VAT Act is not complied with in that "the separate use, or disposal of the dwelling…" has been prohibited by that statutory planning consent. This gave rise to a further point for the consideration of the tribunal, as to whether the phrases "the separate use," and "or disposal" in the Note were to be read as independent and mutually exclusive or read together as a composite term. The view taken by the Commissioners in their decision not to allow the refund of Vat to the Appellant was that sub-section (c) had been breached. In the submissions to us by Mr Heptinstall the matter was put initially as merely one of "semantics" and that the dictionary definitions of "ancillary" and "separate" were not the same. The factual situation was that there was a wholly separate family home treated as such by the local authority and with a separate legal title. So far as both he and the Appellant were aware there was no covenant or like provision on the legal title restricting the unfettered use and disposal of Barncrest and as similarly they did not consider that there was any restriction in the statutory planning consent the condition in Note 2 (c) had not been infringed. The planning permission did not include common phrases used to prevent separate use or disposal; and Notice 719 itself which was intended to give guidance was ambiguous and the point was not addressed that in the model planning condition produced from the Deputy Prime Minister's office (Planning Permission Circular 11/95) the restrictive wording used was "ancillary to residential use of the dwelling" and not "separate use" which was a different term.

Conclusions

6. The intention behind the Do It Yourself (DIY) Builders scheme for the refund of VAT on building materials was to place the do-it-yourself builder or converter in VAT terms in a broadly similar position to a person who buys from a developer who has done the work as part of his business. Hence the notes to the VAT Act 1994 Sch. 8 Group 5 apply to s.35 as they apply to that Group. The building is to be self-contained and with no direct internal access to other accommodation (Note 2(a) and (b)); and 2 (c) further defines what is required by way of the "separateness" of the building in the wording used that "the separate use, or disposal" of the dwelling is not to be prohibited by any "covenant, statutory planning consent or similar provision."
7. Counsel for the Commissioners took us through various changes made in the legislation as a background to the current wording of 2(c) and drew an analogy also with the use of the terms "separate use" and "separate disposal" in Group 6 of Schedule 7A in 4 (3) with regard to the meaning of multiple occupancy dwelling and where interestingly the terms are set out in two separate sub-clauses not one as in the condition before us. We have looked also at three previous tribunal decisions. There is not a total consensus there. In two of the decisions namely Nick Hopewell-Smith v Commissioners of Customs and Excise (LON//99/947) and John Charles Munnery v Commissioners of Customs and Excise (MAN/01/0420) the view was expressed obiter that the prohibition in condition 2(c) was in the alternative with the result that if only the separate use of the building were prohibited but not the disposal of the dwelling condition 2(c) would be satisfied. This view was not accepted in Paul Henry Wiseman (LON/00/1040). The tribunal held to be incorrect the Appellant's construction in that case of condition 2(c) to the effect that only if a prohibition existed on both use and disposal was the condition not met.
8. We look again at the ordinary meaning of the words. The Note is phrased in such a way that a refund can be obtained but a person is excluded from that benefit unless the four conditions in 2 (a), (b), (c), and (d) are met. These four conditions are inclusive not in the alternative and are intended to make clear what the nature of the work is to be. An annexe or extension is necessarily excluded from the benefit of the refund on the terms used. The Barncrest conversion was described in the planning permission as a "granny flat" and whatever may have evolved that conversion is still subject to the planning conditions imposed.
9. In the instant case the planning permission restricts the change of use to that of providing "ancillary accommodation in association with the main use of Rose Bank Farm as a dwellinghouse". This restriction is in our view a prohibition on the separate use of Barncrest. It amounts also in substance to a restriction on an open-market disposal of Barncrest. Any person acquiring it would it would be restricted to using Barncrest as "ancillary accommodation in association with the main use of Rose Bank Farm as a dwellinghouse". Barncrest cannot in any realistic sense be disposed of freely or separately from the use of Rose Bank Farm as the main dwelling unit. In our view the suggested dichotomy between a prohibition on separate use and a prohibition on separate disposal is on the facts of the instant case unrealistic and we do not accept it
10. Equally it is our opinion that provision was not being made in 2(c) for a further category where so long as the planning permission did not specifically refer to a restriction on "disposal" a conversion which on planning use was ancillary to another residence could stand alone and benefit from a refund. To our mind to satisfy condition 2(c), it is necessary that both "the separate use, or disposal" of the dwelling is not prohibited. If the separate use is prohibited condition 2(c) is not satisfied since it cannot fairly be said that "separate use, or disposal" is not prohibited. Likewise if the separate disposal is prohibited condition 2(c) is not satisfied. If either is prohibited there is in our view no right to a refund.
11. If the restriction in the planning permission were to be regarded as prohibiting only the separate use of Barncrest we consider that condition 2(c) is not satisfied in any event for the reason given above. We prefer the conclusion in Wiseman that it is not correct that condition 2(c) is satisfied if only one but not both out of separate use or separate disposal is prohibited. The prohibition in the words of Condition 2(c) must not prohibit separate use or separate disposal. In order to obtain a refund, neither separate use nor separate disposal must be prohibited. In other words (as condition 2(c) is expressed in the negative) both conditions in 2(c) must be satisfied.
12. We dismiss the appeal.
13. The Commissioners have not sought costs and we make no direction as to costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 13 February 2006

MAN/05/0530