VAT – Zero rating – Construction of dwelling – Value Added Tax Act 1994 – Appellant carrying out works involving replacement of existing house with new dwelling – Part of original façade retained – Whether relevant supplies zero-rated as supplies made in the course of construction of new dwelling – Whether retention of part of façade meaning that supplies standard-rated as made in course of extension or alterations to existing building – Whether planning permission requiring retention of façade – Notes 16 and 18 to Group 5 of 1994 Act – Appeal dismissed
In late 2012, the appellant contractor carried out works for the owners of a house to replace the existing structure with a new dwelling. Part of the original façade, including part of a projecting bay, was retained and incorporated into the new structure. The appellant sought exemption from VAT on the supplies that it made the course of the construction works, arguing that they were zero-rated supplies made in the course of construction of a new dwelling within item 2 in Group 5 of Schedule 8 to the Value Added Tax Act 1994.
The respondents decided that the supplies attracted VAT at the standard rate. They considered that the works fell outside item 2 since the original house had not been completely demolished and the works were therefore extensions or alterations to an existing building.
The appellant appealed to the first-tier tribunal (FTT), contending that the original house had ceased to be an “existing building” because, while it had not been completely demolished so as to fall within Note 18(a) to Group 5, it met the condition in Note 18(b), namely that the retention of the façade was a condition or requirement of the relevant planning consent. The consent for the works referred to extensions and alterations to be carried out in accordance with the approved plans and documents, which made no mention of retaining the façade; however, the appellant relied on a letter sent to it by the property owners’ architect, following discussions with the local planning authority, which indicated that part of the façade was to be retained to ensure that the planning consent was not nullified.
Dismissing the appeal, the FTT found that the planning consent contained no condition or requirement for the retention of the façade within the meaning of Note 18(b). It concluded that the appellant’s supplies were standard-rated for VAT purposes.
The appellant appealed. It challenged the FTT’s conclusion as to the requirements of the planning permission and contended that, in any event, the retained part of the façade should be disregarded as de minimis. It further argued that, even if the original house remained an “existing building”, the construction works did not amount to the conversion, reconstruction, alteration, enlargement or extension of that house for the purposes of Note 16 to Group 5.
Held: The appeal was dismissed.
(1) The burden was on the appellant to prove that its supplies could properly be treated as zero-rated. That required the appellant to establish that the only conclusion open to the FTT on the evidence of the architect’s letter was that retention of the projecting bay was a condition or requirement of the planning consent. It could not do so. In order for Note 18(b) to be satisfied, the planning consent had to require, rather than merely permit, the retention of the façade. Mere inference was not enough. Where planning consent was granted subject to the condition that the work would be carried out in accordance with plans, a requirement to retain the façade would exist where the plans showed that the façade was to be retained. The plans in the instant case contained no such indication. Nothing in the terms of the planning consent or the plans required the retention of the projecting bay. While the evidence of the architect’s letter showed that the planning authorities considered that demolition of the entire façade would nullify the planning permission, that could be interpreted as a statement that the planning consent would be nullified if the original building were completely demolished, rather than as a requirement that part of the façade be retained. The FTT was entitled to consider that the discussion and understanding between the architect and the planning authority did not amount to a position condition or requirement to retain the projecting bay or give rise to any inference that the planning consent contained any such requirement: Wilson v Commissioners for HM Revenue and Customs [2014] UKFTT 320 (TC) distinguished.
(2) The de minimis principle was not excluded from the operation of Note 18 when determining whether a building had ceased to be an “existing building”. The principle applied to Note 18(a), dealing with the case of demolition to ground level, so that, for example, the leaving of a single brick would not preclude a finding that the building had been completely demolished; in that situation, what remained above ground level was not a building or part of one, but was a brick. At the other end of the scale, the retention of a façade could not be regarded as de minimis, since there would otherwise be no need for the specific exemption in Note 18(b) where such retention was a condition or requirement of the planning consent or similar permission.
What was de minimis in a particular case would depend on the circumstances of that case and the nature of the statutory provision in question. In the instant case, the retention of the projecting bay could not be regarded as de minimis. If what remained was capable of being a façade for the purposes of Note 18(b), then the remaining part was of real substance and not de minimis. In the absence of Note 18(b), the retained façade would prevent the building from being regarded as completely demolished, even if its retention were a condition of the planning consent. Moreover, the fact that the local planning authority viewed the remaining part as sufficient to prevent the building from being completely demolished lent support to the view that it was not de minimis. It followed that the structure remained an existing building.
(3) Note 18 was not necessarily determinative of the question whether works were the construction of a building. Simply because what remained after demolition might be an existing building by virtue of Note 18, it did not necessarily follow that all work, no matter how extensive, done on the site had to be regarded as an enlargement or extension: Commissioners for HM Revenue and Customs v Astral Construction Ltd [2015] UKUT 21 (TCC); [2015] STC 1033; [2015] PLSCS 73 considered. It might therefore be appropriate in suitable cases to consider both Note 16 and Note 18 to determine whether, if the works were not the conversion, reconstruction, alteration, enlargement or extension of the existing building, they amounted to the construction of a building. However, while the Note 16 issue had not been argued before the FTT, it was implicit in its decision that it had regarded the works as the alteration and extension of an existing building within Note 16. That flowed from its finding that the planning the retention of the projecting bay was to ensure that the planning authorities would accept the works as not contravening the planning consent, which was for alterations and extensions and not demolition. It followed that the appellant’s supplies were not zero-rated.
Charles Bradley (instructed by VAT Advisory Services Ltd, of Basingstoke) appeared for the appellant; Jennifer Thelen (instructed by the legal department of HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
Click here to read transcript: Boxmoor Construction Ltd v Commissioners for HM Revenue and Customs
