Value added tax – DIY builders scheme – Construction of dwelling – Respondent constructing dwelling on site including fishery – Respondent claiming refund of VAT incurred on connection with construction of building designed as dwelling – Appellant commissioners refusing refund – Whether building designed as dwelling – Whether descriptions and other details of development in planning application and/or planning consent prohibiting separate use of dwelling for purposes of note 2(c) to Group 5 of Schedule 8 to the Value Added Tax Act 1994 – Whether occupancy condition in planning consent amounting to prohibition – Appeal allowed
The respondent applied for planning permission to construct a dwelling at Hall Lake Fishery, The Fairways, Mansfield Woodhouse, Nottingham. Permission was refused but the secretary of state allowed the respondent’s appeal and granted planning permission. A statutory planning consent was granted under section 78 of the Town and Country Planning Act 1990 which contained a condition (condition 4) that occupation was to be limited to a person solely or mainly employed at the fishery, a widow or widower, or resident dependants.
The respondent claimed a refund of VAT under section 35 of the Value Added Tax Act 1994 in the sum of £8,566.72, incurred by the respondent in connection with the construction of the building. The appellants rejected the claim on the ground that it failed to satisfy the condition for a refund n note 2(c) to Group 5 of Schedule 8 to the 1994 Act since the respondent could not use the property separately from another property. The appellants maintained their position on a review. The First-tier Tribunal (FTT) allowed the respondent’s appeal against that decision holding, amongst other things, that the building had been “designed as a dwelling” within the meaning of section 35 and note 2(c) as its “separate use or disposal” was not “prohibited” by the planning consent.
The appellants appealed. The Upper Tribunal was concerned only with the meaning and application of note 2(c) and essentially with the question whether, on the facts of present case, “the separate use or disposal of the building was not prohibited by the term of any covenant, statutory planning consent or similar provision”.
Held: The appeal was allowed.
(1) The words “separate use” in note 2(c) meant use that was separate from that of the main building, rather than merely distinct use or use as a separate household, for example by guests or dependant relatives. A use which was required to be incidental or ancillary to the use of the main house could not be a separate use for that purpose: Commissioners of HM Revenue and Customs v Lunn [2010] STC 486; [2010] PLSCS 150 followed.
(2) The words “not prohibited” fell to be interpreted strictly (in the present context widely) because they formed part of a potential exemption from the general rule that a supply was subject to VAT. Giving a strict/wide interpretation to “not prohibited”, the phrase could be satisfied only if the separate use of the building was not out of bounds of the terms of the planning permission, in fact and in planning law, such that those terms permitted unconstrained use of it. A use which was a breach of the terms of a planning consent would be prohibited in that sense: Commission v Finland (Case C-169/00) [2004] STC 1232 considered.
(3) The description of a development could itself constitute a prohibition on a certain use or uses, without an express mandatory condition or equivalent provision. However, one had to be cautious when asked to construe a description, whether contained in the application (if incorporated into the permission) or in the permission itself, as importing a prohibition in the sense of note 2(c). The word “prohibited”, including its equivalent of “forbidden” or “out of bounds”, carried with it a requirement for legal certainty. Legal certainty was clearly required for the purposes of note 2(c) because the legal entitlement to a refund of tax depended upon whether or not that provision was satisfied. Such certainty was also required in the planning context because owners and those interested or potentially interested in a property needed to be in a position to know their rights and obligations in relation to a planning consent which related to it. Given that the appropriate interpretation of note 2(c) was “separate from”, and given the consequent requirement that there be no such formal/obligatory link with other land/building which that interpretation imported, it was likely to be relatively rarely that a description alone would be such as to give rise to a prohibition on separate use or disposal for the purposes of note 2(c). In the present case, absent condition 4, it could not be said that the permission was subject to a prohibition on separate use or disposal within note 2(c): Wilson v West Sussex County Council [1963] 2 QB 764; (1963) 185 EG 683, Uttlesford District Council v Secretary of State for the Environment (1989) JPL 685, R v Ashford Borough Council, ex parte Shepway District Council [1998] PLSCS 156, Telford and Wrekin Council v Secretary of State for Communities and Local Government [2013] EWHC 79 (Admin); [2013] 1 EGLR 87 and Commissioners of HM Revenue and Customs v Shields [2014] UKUT 453 (TCC); [2014] PLSCS 338 considered.
(4) In construing a condition in a planning permission, the whole consent fell to be considered and a strict or narrow approach was to be avoided in favour of one which was benevolent, applied common sense and, where appropriate, took account of the underlying planning purpose for the condition as evidenced by the reasons expressed. In the present case, there was no question but that the limitation in condition 4 was in sufficiently mandatory and clearly defined terms to be capable of amounting to a prohibition within note 2(c). The aim of the condition was manifestly to ensure, by means of the occupancy restriction, that the accommodation was retained for the purposes of the fishery business. Accordingly, the separate use of the building was prohibited by the planning consent. As a result, the building was not “designed as a dwelling” for the purposes of section 35(1A)(a) of the 1994 Act and note 2(c) and its construction did not attract a refund of VAT pursuant to section 35(1): Commissioners of HM Revenue and Customs v Lunn [2010] PLSCS 150, Swain v Commissioners of HM Revenue and Customs [2013] UKFTT 316 (TC), Commissioners of HM Revenue and Customs v Shields [2014] PLSCS 338 considered.
Christiaan Zwart (instructed by the general counsel and solicitor to HM Revenue and Customs) appeared for the appellants. The respondent did not appear and was not represented but provided written submissions.
Eileen O’Grady, barrister
Click her to read the transcript of Commissioners for HM Revenue and Customs v Burton
