United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19564

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Anthony Christopher Collins v Revenue & Customs [2006] UKVAT V19564 (27 April 2006)

19564

VAT – DIY BUILDERS SCHEME – Appellant converted a music room into a semi-detached three bedroom dwelling – the music room had previously been a forge comprised within a converted stable block – section 106 agreement preventing the separate disposal of the three bedroom house – the conversion did not meet the requirements of a residential conversion (Note 2 & Note 7 (A) Group 5 Schedule 8 of the Value Added Tax Act 1994) – Appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

ANTHONY CHRISTOPHER COLLINS Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: Michael Tildesley OBE (Chairman)

Robert Grice LLB (Hons)

Sitting in public in Birmingham on 28 February 2005

The Appellant appeared in person

Sara Williams, counsel, instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

The Appeal

The Appellant was appealing against the Respondents' decision of 21 and 23 June 2005 disallowing the sum of £11,145.76 plus interest by way of refund of VAT under the "Do it yourself (DIY) builders scheme".

The Appellant's ground of Appeal simply stated that "non residential conversion not being accepted".

The Issue in Dispute

The Appellant converted a wing of a former stable block to a three bedroom dwelling for his own occupation. The Appellant engaged the services of a builder to carry out the conversion. He made a claim of £11,145.76 under the DIY builders scheme in respect of the VAT incurred on the costs of construction. Mr Collin's father occupied the other wing of the stable block.

To obtain a refund of VAT the Appellant has to establish on the balance of probabilities that the conversion of the stable block wing was a conversion of a non-residential building into a building designed as a dwelling

The Respondents were of the view that the Appellant was not entitled to the refund under the DIY builders' scheme because the building works did not involve a non-residential conversion. Further the conversion did not create a dwelling as defined by the VAT Act 1994 because it could not be disposed of separately from the stable block as a whole.

The evidence

We heard from Mr Collins and his father about the history of the building and the conversion of the stable block wing. Dawn Daly, HM Revenue and Customs Officer, gave evidence about how the Respondents dealt with the Appellant's application.

The Respondents prepared a bundle of documents for the Tribunal.

A copy of the section 106 agreement made under the Town and Country Planning 1990 between the Appellant's parents and South Herefordshire District Council was provided to the Tribunal on 24 March 2006 pursuant to the direction released 9 March 2006.

The Facts

The facts of the Appeal were not in dispute.

The stable block was located four miles outside Hereford and originally was part of Burgh Hill estate. The stable block essentially consisted of two wings joined together by a covered terrace with a courtyard. The Appellant's parents purchased the stable block in 1980 and occupied one wing as their dwelling. The other wing of the stable block comprised a "music room" and a coach building which were joined together by means of an archway allowing access to the courtyard.

The "music room" was originally a forge operated by a blacksmith. The horses were tethered under the covered terrace which joined the two wings of the block. The covered terrace was effectively an extension of the courtyard and open to the elements. In 1971 the previous owners to the Appellant's parents converted the forge to a "music room", blocking the doorway to the covered terrace. The conversion, however, was not to a high standard consisting of a brick shell with no insulation and open beams. The Appellant's parents had no use for the "music room" treating it as an outbuilding for storage.

In 1997 the Appellant decided to sell his own property and convert the "music room" into his home. His parents were anxious for him to be close on hand as the Appellant's mother was suffering from deteriorating health. The local planning authority would not give planning permission for the conversion unless the Appellant's father signed a section 106 agreement under the Town and Country Planning Act 1990 which was done on 20 August 1997.

Under the section 106 agreement the Appellant's parents covenanted with South Herefordshire District Council, the local planning authority, that:

"…. upon the Council granting planning permission for the conversion and extension of a former music room to form annexe accommodation …. The said annexe accommodation shall not be sold or leased separately from the remainder of the property and will at all times be a corporate part of the same".

The effect of the section 106 agreement was that the converted music room could not be sold or leased separately from the stable block as a whole.

On 15 September 1997 the Council granted planning permission for the conversion and extension of former music room into granny annexe, The Old Stables, Burg Hill, Hereford.

The "music room" was converted into a two storey semi-detached three bedroom house with two reception rooms and two bathrooms. The Council issued the "Certificate of Completion of Work" on 4 December 2000.

The Respondents gave permission to the Appellant to submit a late claim under the DIY builders scheme. On 4 March 2005 the Appellant submitted his claim for a VAT refund in the sum of £11,145.76 in connection with the conversion works. The Respondents did not challenge the amount of the claim.

Reasons for Our Decision

Section 35 of the Value Added Tax Act 1994 places the DIY house builder in broadly the same position as the person who buys a dwelling from a developer. In order for the Appellant to succeed with his refund claim the requirements of section 35(1)(D)(a) of the VAT Act 1994 must be met, which are:

"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 building designed as a dwelling..".

The Non-Residential Requirement

The meaning of non-residential is defined in Note 7 (A) of Group 5 of Schedule 8 of the VAT Act 1994 which states that

"if it is neither designed, nor adapted, for use as a dwelling or number of dwellings, or it is designed or adapted for such use but it was constructed more than 10 years before the commencement of the works of the conversion and no part of it has, in the period of 10 years immediately preceding the commencement of those works, been used as a dwelling and no part of it is being so used".

The facts found showed that the residential conversion of the "music room" took place around 1971 when it was converted from the forge. The effect of the 1971 conversion was that the "music room" became part of the stable block used as a dwelling by the Appellant's parents and the previous owners. The fact that the Appellant's parents only used the "music room" for storage was irrelevant. The "music room" lost its non-residential character when it was converted from the forge. Thus the conversion of the "music room" into the Appellant's semi-detached house did not constitute a conversion of a non-residential part of a building.

The Dwelling Requirement

The Appellant was required to meet the dwelling requirement of the residential conversion to qualify for a VAT refund under the DIY builders scheme. Note (2) to Group 5 of Schedule 8 to the 1994 Act lists the conditions that must be satisfied for a building to be defined as a dwelling:

(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 the Appellant met conditions 1, 2 and 4 but not condition 3. The section 106 agreement dated 20 August 1997 prevented the converted "music room" from being sold or leased separately from the stable block as a whole.

Respondent's Counsel referred us to the decision of VAT and Duties Tribunal in Gill Cartagena v The Commissioners for Her Majesty's Revenue and Customs (Manchester 13 December 2005) which highlighted conflicting Tribunal decisions (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) on the meaning of the phrase "separate use or disposal of the dwelling" in Note 2(c) 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 only prohibited either separate use or disposal.

The Tribunal in Cartagena supported the interpretation in Wiseman, stating at paragraph 10:

"To our mind to satisfy condition 2(c) (condition 3, my italics) 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 refund".

We agree with the interpretation of Note 2(c) in Cartagena and Wiseman. The section 106 Agreement prevented the separate disposal of the Appellants semi detached house converted from the "music room". Thus the conversion did not meet the requirement of Note 2(c) which we have called condition 3 in paragraph 21.

Decision

We decided that the Appellant's conversion of the "music room" into a semi- detached house did not constitute a residential conversion. The conversion did not meet the non-residential conversion and dwelling requirements as specified in section 35(1)(D)(a) of the VAT Act 1994. The Appellant was, therefore, not entitled to VAT refund under the DIY builders' scheme.

We dismiss the Appeal and make no order for costs.

MICHAEL TILDESLEY

CHAIRMAN

Release Date: 27 April 2006

MAN/05/0506