United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20378

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Michael Alan Reay v Revenue & Customs [2007] UKVAT V20378 (25 September 2007)

20378

VAT — DIY scheme — conversion of barns — claim for refund of VAT under s.35 of VATA 1994 — condition in planning permission restricting use to that ancillary to existing farmhouse — consideration of four conditions in Note 2 to Group 5 of Schedule 8 of VATA — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MICHAEL ALAN REAY Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Roland Presho

Sitting in public in York on 20 July 2007

The Appellant appeared in person

Lisa Linklater, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal heard by the tribunal was that of Michael Alan Reay (the Appellant) against a decision of Customs set out in a letter from them dated 3 November 2006 refusing his claim pursuant to s. 35 of the Value Added Tax Act 1994 ("the Act") for a refund of input tax.

The Appellant appeared on his own behalf and gave both his presentation and his response to cross-examination by counsel under oath. He explained to the tribunal that on 4 May 2004 full planning permission (the planning permission) had been obtained from the East Riding of Yorkshire Council on an application submitted in his name. The proposal which had been approved had been for "the conversion of outbuildings to form domestic extensions to existing farmhouse" and the location was Gale House Farm Back Road Newton On Derwent East Riding of Yorkshire YO41 4BZ.

After the work had been completed the Appellant submitted to Customs a claim for a refund of VAT in the sum of £51676.30 in respect of goods materials and services used. We were told by the Appellant that he had been advised by his accountants that the scheme would qualify for VAT relief. However, the claim was rejected on 7 September 2006 by Kate Sherrard, an officer of Customs, and her decision was upheld on a review by a higher officer on 3 November 2006. The Appellant submitted an appeal to the tribunal on 28 November 2006. He gave as his grounds of appeal the following:

"This case relates to a DIY claim for the refund of Vat on a self build construction project. It is my contention that H M Customs and Excise have wrongly and incorrectly interpreted and applied Notice 719 in respect of my scheme and have incorrectly rejected my claim for refund of VAT".

Kate Sherrard attended the hearing and gave evidence. It was agreed by the parties that the matter to be determined should be the liability to VAT not quantum. An assurance, which we accept, was given by the Appellant that a semi-detached farm cottage was not within the planning permission nor was the cottage within the conversion the subject of this appeal.

The Appellant in presenting his evidence referred us to a number of copy photographs and plans showing the site. The intention was as the planning permission stated to convert certain barns referred to in the planning permission as 'the outbuildings'. The four-bedroom farmhouse mentioned in the planning permission was not part of the VAT claim. The planning authority required the conversion to retain as far as possible features of East Riding barns including the triple entry areas windows and gables.

The Appellant has relied heavily in his submissions on his interpretation of Notice 719 issued by Customs and entitled "VAT refunds for 'do-it yourself' builders and converters", particularly the effect of section 7 which relates to the conversion of non-residential buildings. It is however necessary to look at the statutory provisions as the Notice is for guidance only.

Accordingly we turn to s. 35 of the Act, which is headed "Refund of VAT to persons constructing certain buildings" and also to Group 5 of Schedule 8 and the relevant notes made applicable by the section. The building works undertaken are to be lawful and not for business purposes and include "a residential conversion" s.35 (1A)(c) described in (1D) as follows:

"…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;

(b) a building intended for use solely for a relevant residential purpose; or

(c) anything which would fall within paragraph (a) or (b) above if different parts of a building were treated as separate buildings."

Note 2 (Group 5, Schedule 8) provides in respect of " a dwelling designed as a dwelling or a number of dwellings" that 4 conditions are to be satisfied namely that:

"(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 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 that dwelling and its construction or conversion has been carried out in accordance with that consent."

There is a condition in the planning permission relevant to the conditions in Note 2 (a) and (c) above which states;

"5. The conversion hereby approved shall not be occupied at any time other than for purposes ancillary to the residential use of the dwelling known as Gale House Farm, Newton on Derwent.

This condition is imposed because it considers that the occupation of the development needs to be restricted as its occupation as a separate dwelling would be contrary to policy and would be harmful to the wider surrounding area."

It is further provided in sub-section (4A) of section 35 of the Act that the meaning of "non-residential" given by Note 7(A) of Group 5 of Schedule 8 (and not that given by Note 7 of that Group) applies for the purposes of this section and (7A) provides:

"…a building or part of a building is "non-residential" if-

(a) it is neither designed, or adapted, for use-

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

(ii) for a relevant residential purpose; or

(b) it is designed, or adapted, for such use but-

(i) it was constructed more than 10 years before the commencement of the works of conversion, and

(ii) no part of it has, in the period of 10 years immediately preceding the commencement of those works, been used as a dwelling or for a relevant residential purpose, and

(iii) no part of it is being so used."

"Relevant residential purpose" is not applicable in the present case.

Section 7 of Notice 719 headed "What is a residential conversion?" explains what "use as a dwelling" means and how the ten-year rule" operates both of which are referred to in Clause 10 above.

The issue before the tribunal is whether the work undertaken by the Appellant constitutes a residential conversion to a dwelling designed as a dwelling within the provisions of s.35 of the Act. There are as set out before legislative restrictions and conditions which apply and the Appellant has to establish to the satisfaction of the tribunal that his works meet all the requirements.

We accept that the refund claimed relates to work done on the barns and that no part of it relates to the farmhouse or the semi-detached cottage. It appears to us from the photographs and plans produced by the Appellant and his evidence unchallenged by Customs on this point that prior to the work the barns were dilapidated and had been used only for animals and storage. The statutory requirements for the VAT refund however are clear in that in the case before the tribunal the conversion of those barns must have produced a "building designed as a dwelling or a number of dwellings"; but the planning permission is also quite specific as to the work which may legally be done in restricting occupation to purposes 'ancillary to' the farmhouse and not a separate dwelling as required by the VAT legislation.

We turn nevertheless to the four conditions in Note 2. These are cumulative and not in the alternative so all must be satisfied for the Appellant to be entitled to a refund. He submitted on these that:

(a) the conversion could provide for self-contained living accommodation or had alternative or separate uses as as guest accommodation storage or a games area;

(b) there was no direct internal access only indirect access as the second kitchen and 'octagonal ' structure shown on the plans linked the old to the new and the dwelling as it was now only existed because of the barn conversion; free access was restricted by two walls and two doors;

(c) the planning permission dealt only with "occupation" and not "use" and therefore did not operate as a prohibition and further as the planning permission did not impose a restriction on disposal of the converted building (c) was not infringed; and

(d) the work had been carried out in accordance with the planning permission.

It was part also of the Appellant's submissions that this was not a planning issue in any event but a VAT matter and that Customs were incorrect in basing their decision on a planning point and had not made a "site specific assessment". It was confirmed to us by Kate Sherrard that a site visit was not made and she had not thought of making one but that the decision on the application was made on a consideration of the work undertaken as indicated in the paperwork supplied and the planning permission. We are satisfied that this was an appropriate procedure.

We look first at the position as it relates to points (a) and (c). We do not consider there is any ambiguity in the wording of the planning permission which is to the effect that there is to be no separate dwelling. For VAT purposes what is required is that at the end of the construction there should be a separate dwelling whether this should be as a new-build or a conversion from non-residential buildings. We have indeed been informed by counsel for Customs and this was not denied by the Appellant that an application had been made on the Appellant's instructions to the planning authority requesting that the restriction in the planning permission be amended but that this had been turned down as contrary to policy.

As to the insertion of the word" occupation" rather than "use" in our opinion occupation of a building means control over its use and in the case before us the use is controlled by the planning permission to be "ancillary" to the farmhouse. Equally on the question of the wording used in Note 2(c) that "…the separate use, or disposal, of the dwelling…" is not to be restricted by (inter alia) a prohibition in any planning permission we are satisfied that on an ordinary reading of these words in association with the planning permission both the separate use and the separate disposal are prohibited. There is no further category created by the wording whereby if a planning permission does not specifically refer to a restriction on "disposal" as well as on "use" a conversion as in the instant case which is in planning terms to be for purposes "ancillary to the residential use" of another building can be seen to stand alone and thus fall within the refund provisions of the legislation.

We have examined the evidence presented to us on the requirement in Note 2(b) that there should be no provision "for direct internal access from the dwelling to any other dwelling or part of a dwelling." It is clear to our mind from the plans and from the information given that from where the old barn ended the converted area is joined and attached to the original farmhouse and vice versa by what have been called the second kitchen and the octagonal dining room and indeed that it is possible to walk through. There had originally been an outside area here. It is a specious argument to suggest as the Appellant did that because there are internal walls direct internal access is prohibited. The walls have doors through which entry from one part to the other can be made. There is no restriction on internal access and that access is direct. However, this could only be relevant if there are two separate dwellings within (a) above.

So far as (d) is concerned, we have no information as to whether or not there has been any breach of the provisions of the statutory planning permission though there is with the papers before us a letter of substantial completion dated 12 May 2006 from the East Riding of Yorkshire Council. However in respect of the conditions imposed by Note 2 (a) (b) and (c) we are satisfied that these have not been met and the appeal cannot succeed.

We dimiss the appeal.

Customs did not seek costs and we make no direction as to costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 25 September 2007

MAN/06/0837