United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20506

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Andrew and Tina Johnson v Revenue & Customs [2007] UKVAT V20506 (14 December 2007)

20506

CONSTRUCTION – DIY Refund – Cottage used as dwelling up to 2000 – Later declared unfit under Housing Act 1985 and deleted from council tax register – Conversion and extension by purchasers – Whether `non-residential' before conversion – No – VATA 1994 s.35, Sch 8 Grp 5 Notes (7A) and (18) – Appeal dismissed

LONDON TRIBUNAL CENTRE

ANDREW AND TINA JOHNSON Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: THEODORE WALLACE (Chairman)

JOHN BROWN CBE, FCA, CTA

Sitting in public in London on 22 November 2007

Andrew Johnson in person

Christian Zwart, counsel, instructed by the Solicitor for the Respondents

© CROWN COPYRIGHT 2007

DECISION

This was an appeal against the refusal of a claim under section 35 of the VAT Act 1994 for the refund of £9,088.82 VAT incurred by Mr and Mrs Johnson on building work to Banks End Cottage, Wyton, Huntingdon.

The legislation is broadly designed to give refunds to DIY builders not engaged in a building business in circumstances where a builder would be entitled to zero-rated new construction of residential buildings.

There was no dispute as to the facts.

Banks End Cottage, which was an eighteenth century building and which was in need of major work, was bought by the Appellants in October 2002. The building had outline planning consent for an extension.

The cottage was previously occupied by an elderly lady who died in 2000. Following her death the cottage was unoccupied. The cottage was deleted from the Council Tax Valuation list with effect from 17 October 2002.

The Appellants applied for planning consent for extensions and alterations and formation of vehicular access on 6 January 2003 providing plans.

Much of the structure of the original building was retained including half of the thatched roof, the chimney, two gable walls and a side wall. The ground floor was excavated to the original level of the footings and reconstructed to comply with current building regulations. The extension was to the rear of the house making a T-shape.

On 28 April 2003 following a visit an Environmental Health Officer wrote to Mr Johnson to confirm that in its present condition the property fell short of the standards of fitness under section 604(1) of the Housing Act 1985. That section laid down requirements for a dwelling-house to be fit for human habitation. The officer asked to be advised when the current scheme of renovation was complete. There was no evidence as to any further action being taken; it is clear that there was no demolition order.

Huntingdonshire District Council granted detailed planning consent in accordance with the January 2003 application. There was no evidence as to the date of the consent. The planning consent was for extensions and alterations and did not cover demolition of the cottage. It contained no requirement to retain any façade.

Mr and Mrs Johnson carried out the work themselves. Until the work was finished they lived in a mobile home on the site. The work was completed by 1 June 2006. On 21 June 2006 the Council issued a completion certificate under the Building Regulations 2000. Following a visit on 27 July 2006 the Council gave notice of making a new entry in the Council tax valuation list placing the cottage under Band E with effect from 31 May 2006. The band before deletion in 2002 was Band C. A letter from the Valuation Office Agency dated 5 April 2007 stated,

"If a property has been extended or altered I can confirm that we are prevented by current legislation to amend the council tax band of a property until there has been a relevant transaction or such time as a revaluation. I can also confirm that your property was banded as a new build …"

On 31 August 2006 the Appellants made the claim for refund of VAT which has given rise to this appeal. The extent of the work was substantial.

The claim was rejected on the grounds that it was for an extension to an existing building which had not been empty for a period of 10 years from when the work started.

The legislation

Section 35(1) provides for the refund of VAT to persons carrying out certain works lawfully but not in the course of a business. Under subsection (1A) the works include "the construction of a building designed as a dwelling" and "a residential conversion".

Section 35(1D) provides,

"… works constitute a residential conversion to the extent that they consist of the conversion of a non-residential building ... into (a) a building designed as a dwelling …"

Section 35(4) applies the Notes to Group 5 of Schedule 8 for construing section 35 subject to subsection (4A). Subsection (4A), which was inserted by statutory instrument in 2001, provides,

"(4A) The meaning of 'non-residential' given by Note (7A) of Group 5 of Schedule 8 … applies for the purposes of this section but as if –

(a) references in that Note to item 3 of the Group were references to this section …"

Note (7A) to Group 5, which was inserted by the same statutory instrument in 2001, provides,

"(7A) For the purposes of item 3 … a building is 'non-residential' if –

(a) it is neither designed nor adapted for use –

(i) as a dwelling or a 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; …"

Note (16)(a) provides that the construction of a building does not include the conversion, reconstruction or alteration of an existing building. Note (18) provides as follows,

"(18) A building only ceases to be an existing building when:

(a) demolished completely to ground level; or

(b) the part remaining above ground consists of no more than a single façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission."

Submissions

Mr Johnson said that if a building is not fit for human habitation it is non-residential. The cottage had been declared unfit under the Housing Act 1985; it followed that it was non-residential. He said that when it became unfit it ceased to be a dwelling once it was unoccupied. It ceased to be treated by the council as a residential property and was taken off the council tax register completely. When it was put on the register again it was as a new build. He had been told by the building inspector that it would have been cheaper to demolish the building and start again.

He submitted that Note (7A) is not an exclusive test as to when a building is non-residential. Here the building had become non-residential when it was unfit and unoccupied and was deleted from the council tax register. When the work was done it was converted into a dwelling.

Alternatively he said that the building ceased to exist when declared unfit and deleted from the register with the result that the work was not excluded from being construction of a dwelling with section 35(1A) by Note (16) and (18).

Mr Zwart said that the work was excluded from being construction by Note (16) if it constituted conversion or reconstruction of an existing building. Note (8) specified when a building ceased to be an existing building. Here the building had not been demolished completely and there had been no planning condition for the retention of a façade.

He said that the work was not a residential conversion within section 35(1D) because it had never become a non-residential building within the meaning given by Note (7A). Note (7A) contained an exclusive definition laying down the factual criteria for deciding whether a building is non-residential for the purposes of section 35. Section 35 (4A) referred to the meaning given by Note (7A). It had not been suggested that the building came within Note (7A)(a). As to Note (7A)(b), sub-paragraph (ii) was not satisfied because it had been used as a dwelling within the preceding 10 years. It was immaterial that it had become unfit within the Housing Act. The treatment for council tax purposes under a different statutory regime did not affect the VAT treatment.

Conclusions

Whatever the arguments as to whether Note (7A) lays down an exclusive test as to whether a building is non-residential, it is clear beyond doubt that Note (18) is determinative as to whether a building ceases to be an existing building. That Note provides in terms that a building "only ceases to be an existing building" when (a) or (b) is satisfied. The building was not demolished and there was no planning condition as to retention of a façade. The building remained therefore an existing building and the work was not the construction of a building because of Note (16)(a).

The Appellants can only succeed if they come within "residential conversion". If Mr Zwart is correct in his submission that Note (7A) lays down an exclusive test as to what is "non-residential", the appeal must fail because the building had been used as a dwelling within the preceding 10 years.

It is to be noted that the structure and terminology used in the Notes to Group 5 are not wholly consistent. Notes (1) and (3) specify words or circumstances included in the terms and concept in question. Note (2) specifies conditions when a concept applies. Notes (4) and (6) lay down clear definitions using the word "means". Note (5) is a deeming provision. Notes (8) and (9) specifies circumstances not included in concepts.

Notes (7) and (7A) which were added later do not refer to a word or concept being included or not included; they are not deeming provisions and do not refer in terms for the meaning of non-residential. The structure of those Notes is capable either of containing an extension of the concept of non-residential or of laying down a definition.

Mr Zwart's interpretation of Note (7A) has the effect of adding the words "and only if" after the opening words of Note (7A). He said that the wording of section 35(4) indicated that Note (7A) was intended to be an exclusive definition. He said that the fact that the previous version of Note (7) contained the word "means" suggested that no change was intended. We observe that if no change was intended it is unclear why different wording was used. The explanation may be that frequently statutory instruments are not drafted by Parliamentary draftsmen.

In our judgment notwithstanding the lack of clarity in the wording of Note (7A) it does give an exclusive meaning. Note (7A) covers two alternative situations : the first is that the building is neither designed nor adapted for use as a dwelling etc; the second is that it is so adapted or designed. All buildings must necessarily come within one or the other category. When a building falls within the second category it is non-residential if it satisfies the conditions which follow. Those conditions cut down the category of buildings designed or adapted for use as a dwelling which are non-residential. It would be illogical if a building could be non-residential for the purposes of section 35 although the conditions were not satisfied. The conditions in Note (7A)(b)(ii) were not satisfied in this case so that the appeal must fail.

We would add that even if we had taken a contrary view of the interpretation of Note (7A) we do not consider that the fact that the building was unfit under the Housing Act 1985 or that it was deleted from the council tax register would have had the effect that a building which was clearly residential as a matter of the normal use of language became non-residential.

THEODORE WALLACE

CHAIRMAN

RELEASED: 14 December 2007

LON 2007/633