Planning permission – Listed building – Curtilage – Respondent altering listed building – New building being erected in curtilage of listed building – Local authority granting planning permission conditional on use only for purposes incidental or ancillary to residential use of listed building – VAT tribunal upholding respondent’s claim to zero-rating in respect of building works for VAT purposes – Appellants challenging that decision — Whether permission amounting to prohibition on separate use – Whether dwelling capable of being both separate from and ancillary to another dwelling – Appeal allowed
The respondent obtained planning permission to carry out building works to a former cottage to create a two-storey building within the curtilage of a listed manor house. The building was separate from the manor and the respondent owned the freehold of both properties. The new building contained five bedrooms, reception rooms, a kitchen and garage. Listed building consent was required for the development and planning permission was restricted to uses incidental or ancillary to the residential use of the manor house.
The respondent claimed that the building works were zero-rated for VAT purposes. An issue arose as to whether the “separate use or disposal” of the new building was prohibited by the statutory planning consent in accordance with note 2(c) to group 6 of Schedule 8 to the Value Added Tax Act 1994 with the result that zero-rating did not apply to the relevant building works. The appellants contended that the terms of the planning consent amounted to a prohibition on use and/or disposal. The respondent argued that the “use” restriction should not be confused with a prohibition.
The VAT and Duties Tribunal interpreted “separate use” as meaning distinct use or use as a separate household. The commercial use of the building was restricted, but that did not prevent it from being used as accommodation for house guests or dependent relatives and disposal was unrestricted. Since the planning consent did not prohibit a separate use or a disposal, the condition in note (2)(c) was satisfied and zero-rating was applicable to the building works: see decision 20,981.
The appellants appealed, contending that note 2(c) was an exception to an exemption and should be given a wide construction. Its purpose was to restrict the availability of zero-rating to separate dwellings that did not exist in a physically or legally dependent relationship with another dwelling. A requirement that the use of the building be ancillary to or incidental to the use of another building amounted to a prohibition on separate use.
Held: The appeal was allowed.
Note 2 envisaged the situation where a new separate building was subsidiary to an existing listed main building. It was common ground that the building in question complied with note 2(a), in that the dwelling in the building consisted of self-contained living accommodation, and with note 2(b), in that there was no direct internal access from the dwelling to another dwelling.
If the “separate from” meaning of separate use was correct, the purpose of the note was to prevent zero rating unless the new subsidiary dwelling could, in accordance with planning restrictions, be used independently of the main building. A planning restriction preventing a use separate from the main building would commonly apply on the creation of a granny annex. The context of note 2(c) was that it could apply only where the rest of note 2 was satisfied. Giving note 2(c) the “separate from” meaning followed naturally from the foregoing parts of note 2.
On the other hand, if the separate household meaning was correct note 2(c) would mean that what was, by virtue of note 2(a), self-contained living accommodation must not be prevented from being used as such. The only case where that might apply was where the planning permission restricted the use to holiday lets for a limited duration. It seemed less likely that the draftsman of note 2(c) had that in mind when referring in general terms to a separate use being prohibited. Moreover, the concept of planning considerations requiring that a dwelling containing self-contained living accommodation must not be used as such seemed unusual, and it was therefore less likely that VAT legislation would want to deal with such a possibility.
Furthermore, if the “separate from” meaning was correct, a restriction to purposes incidental or ancillary to that of the main dwelling was necessarily a prohibition on use separate from the main dwelling. The word prohibited was the natural expression to use with the “separate from” meaning. Therefore, in the instant case, the planning restriction meant that the building could not be used separately from the listed building. Note 2(c) was not satisfied and the building services in question were not zero-rated.
Per curiam: A number of other VAT and Duties Tribunal decisions had dealt with a variation on similar planning restrictions, all of which had the “separate from” meaning and could not be distinguished from the instant case merely because of the different wording of the planning restriction: Ford v Commissioners of Customs & Excise [1999] UKVAT V16271, D&L Clamp v Commissioners of Customs & Excise [1999] UKVAT V16422 and Milligan v HM Revenue &Customs [2005] UKVAT V19224 considered. Nicholson v HM Revenue & Customs [2005] UKVAT V19412 was out of line with those cases, had been wrongly decided and should not be followed.
Owain Thomas (instructed by the legal department of HM Revenue & Customs) appeared for the appellants; Sadiya Choudhury (instructed by Deloitte LLP, of Birmingham) appeared for the respondent.
Eileen O’Grady, barrister
