United Kingdom VAT & Duties Tribunals Decisions

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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Bracegirdle v Revenue & Customs [2008] UKVAT V20889 (04 December 2008)
URL: http://www.bailii.org/uk/cases/UKVAT/2008/V20889.html
Cite as: [2008] UKVAT V20889, [2009] STI 155

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Michael John Bracegirdle v Revenue & Customs [2008] UKVAT V20889 (04/12/2008)

20889

ZERO-RATING – building – annexe or extension – separate dwelling – planning conditions – Value Added Tax Act 1994 Schedule 8 Group 5 Item 2 Notes 2, 16 and 17 – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MICHAEL JOHN BRACEGIRDLE Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Jean Warburton (Chairman)

Carole Roberts (Member)

Sitting in public in Manchester on 6 November 2008

Richard Barlow, counsel, instructed by UHY Hacker Young, chartered accountants, for the Appellant

Richard Chapman, counsel, instructed by the Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008
 


DECISION

1. This is an appeal by Michael John Bracegirdle against a decision of the Respondents dated 25 May 2007 issued to L Wainwright and Son Limited that supplies of construction services to the Appellant are standard rated.
2. The Appellant was represented by Richard Barlow of counsel. The Commissioners were represented by Richard Chapman of counsel who put in a bundle of copy documents.
3. The question at issue is whether building work at the Appellant's premises is standard rated because it is an annexe to or extension of existing buildings or whether it is potentially zero-rated because there is a separate dwelling. In the latter case, there is a second issue as to the effect of the terms of the planning permission for the building.
4. The Tribunal had witness statements from the Appellant and from Jane Margaret Ellis, an officer of HM Revenue and Customs. Both statements included plans of the premises. The basic facts are not in dispute and we find them to be as follows.

The facts

5. The Appellant has carried out, and is still carrying out, building works at "Mellor Knowl" a house he owns at Wincle, Cheshire. The works consist of the demolition of existing outbuildings and the erection of an indoor swimming pool, garages, a flat and ancillary accommodation such as store-rooms and utilities. An existing door between the original house and the new building has been blocked. The existing house and new buildings are round a court yard which has one driveway for access.
6. Planning permission for the new building was granted on 16 August 2005 by the Peak District Planning Authority. The planning permission contained the following condition:

"3. The first floor accommodation hereby approved flat shall be ancillary to the residential use of Mellor Knowl and shall not be occupied other than by visiting friends and members of the family of the occupier of that dwelling."

The reason for that condition was given as:

"To ensure that the residential accommodation on the first floor remains as ancillary accommodation to and dependent upon Mellor Knowl as the creation of an independent dwelling in this location would be contrary to the adopted policies in the Development Plan."

Evidence

7. The Appellant stated that whilst the flat would not be used by occupants of the existing house, other parts of the new building would be used by both occupants of the flat and the occupants of the existing house. Occupants of the flat would be family, friends, employees and professional advisers. Some would pay, other would not. The Appellant is in the course of transferring ownership of the new building to his three children. The plans attached to the Appellant's statement are labelled 'Extension to Mellor Knowl, Wincle'.
8. Both the Appellant and the Respondents sought the views of the Planning Authority as to the effect of a sale of the new building. In a letter of 9 July 2008 it was stated that 'planning permission would be required before the flat could be lawfully disposed of separately' whereas in a letter of 24 September 2008, a sale was not necessarily considered to be a breach of planning control.

Legislation

9. The relevant provisions are in Group 5 to Schedule 8 of the Value Added Tax Act 1994. Item 2 provides for zero-rating of:

"2. The supply in the course of construction of –

(a) a building designed as a dwelling or number of dwellings ------

of any services related to the construction ------"

Note 2 provides:

"(2) A building designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied –

(c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision.'

Note 16 provides:

"(16) For the purpose of this Group the construction of a building does not include –

(a) the conversion, reconstruction or alteration of an existing building; or

(b) any enlargement of, or extension to an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings; or

(c) subject to Note (17) below, the construction of an annexe to an existing building."

Submissions

10. Mr. Barlow for the Appellant submitted that the new building consisted of one new self-contained dwelling. The new building was neither an extension or an annexe. Mr. Barlow referred the Tribunal to MacNamara v Customs and Excise [1999] V&DR171.
11. In relation to Note 2 (c) Mr. Barlow submitted that both separate use and separate disposal must be prohibited by the planning permission if the work was to be standard rated. He contended that the Tribunal should follow Nick Hopewell-Smith (2000 Decision No. 16725) and not Paul Henry Wiseman (2001 Decision No. 17374) or JFB and FR Sharples (2008 Decision No. 20775). Mr Barlow also referred the Tribunal to Dr. Nicholson (2005 Decision No. 19412) as authority for the proposition that a restriction on use did not prohibit disposal. The condition here did not prohibit either disposal or separate use but merely type of use.
12. Mr. Chapman for the Commissioners submitted that the new building was either an extension or an annexe and referred the Tribunal to Abercych Village Association (2008 Decision No. 20746) for the meaning of those two words.
13. Mr. Chapman further submitted that Note 2 (c) should be construed that if either separate use or disposal are prohibited the work will be standard rated. The reasoning in JFB and FR Sharples following that in Paul Henry Wiseman and Cartagena (2005 Decision No. 19454) was to be preferred. The wording of the condition in this case went beyond that in the Dr. Nicholson case and, in his submission, both separate use and disposal were prohibited.

The law

14. The meanings of extension and annexe were carefully considered in Abercych Village Association and we adopt the guidance in that case at paragraph 21:

"(i) whether the works are an extension or enlargement of the existing building we should consider how the objectively determined factors of appearance, layout and functions for which the building is equipped indicate:

(a) an independent function

(b) a subsidiary function

(c) physical integration

(d) physical separation

and weigh up those factors; and

(ii) whether the works are an annexe of the existing building we should consider whether and how those objective factors indicate:-

(a) association with the existing building;

(b) that the new building is supplementary to the existing building;

(c) that there is a degree of physical or functional integration;

(d) that there is more than tenuous integration,

and if (a) and (b) are satisfied and there is some (but not too much) integration conclude that the building is an annexe."

15. Note 2 (c) is worded 'the separate use, or disposal' with a comma after 'use' and the use of the word 'or' and not 'and'. On an ordinary reading of those words, the conclusion is inevitable that works will not be zero-rated if either separate use or disposal is prohibited. We are reinforced in that conclusion in that those cases which have considered and analysed the wording of Note 2 (c) have reached a similar conclusion – Paul Henry Wiseman, Cartagena and JFB and FR Sharples. In the two cases coming to the opposite conclusion, Nick Hopewell-Smith and Dr. Nicholson, the question of construction was not fully argued or analysed.

Conclusions

16. We have considered carefully the factors listed in Abercych Village Association in determining whether the new building is an extension or annexe. We have noted that the existing and new buildings are built round a court yard with one entrance albeit there is no internal access between the existing and new buildings. We have also noted that, apart from the flat, the rest of the new building will be used by the occupants of both the existing and new buildings. Thus the major portion of the new building will be used by occupants of the existing building. The nature of the buildings, storage, garages for four cars and swimming pool indicate a subsidiary function to both the existing building and the new flat. Further the flat will be occupied by visitors to the occupants of the existing building. Accordingly, we conclude that the new building is an extension to the existing building and note in passing that that was the description employed on the plans.
17. It follows that the building works will be standard rated except to the extent that an additional dwelling has been created. The first floor self-contained flat is clearly capable of being an additional dwelling if the condition in Note 2 (c) is satisfied. In our view separate disposal of the flat is not prohibited. Any new owner would be subject to the limitations as to use set out in the planning permission which would inevitably restrict the number of potential new owners but that does not prohibit disposal.
18. We have previously decided that Note 2 (c) is only satisfied if neither separate use nor disposal is prohibited, which means that the question of separate use has also to be considered. In our view separate use is prohibited. The planning permission is in clear terms that the accommodation in the flat must not only be ancillary to the residential use of Mellor Knowl but also specifies the type of occupier; occupiers who are consistent with ancillary use. We note the decision in Giblin (2007 Decision No. 20352) (referred to in JFB and FR Sharples) which came to the same conclusion on a similar tight condition. We do not accept the reasoning in Dr. Nicholson which was on a differently worded condition.
19. To summarise, we find that the new building is an extension to the existing building and that the self-contained flat is not a dwelling for the purposes of zero-rating because Note 2 (c) to Group 5 of Schedule 8 is not satisfied.
20. Accordingly the appeal is dismissed. We make no order as to costs.

MAN/07/0792

Jean Warburton

CHAIRMAN
Release Date: 4 December 2008