VAT refund – DIY housebuilders scheme – Section 35 of Value Added Tax Act 1994 and note 2(c) to Group 5 in Schedule 8 thereto – Conversion of stable block into residential accommodation – Relevant planning permissions containing “ancillary occupation” condition – That condition removed by further permission granted after works completed – Respondents refusing refund of VAT incurred on conversion – Whether “ancillary occupation” condition precluding refund – Whether removal of condition by later permission to be treated as retrospective for purpose of VAT relief – Appeal dismissed
The appellant’s parents owned and occupied a large residential property with an adjacent stable block. They gave the stable block to the appellant with a view to its conversion into a separate house for him to occupy with his family. In January 2007, the local planning authority granted planning permission for the conversion, subject to a condition that the accommodation should be occupied only in a manner ancillary to the residential use of the main dwelling and should not be used as a separate dwelling. In response to a further planning application to alter some of the details of the development, a second permission was granted in January 2008, subject to a similar occupancy condition as before. The works went ahead; in December 2009, the architect in charge of the project issued a final certificate for the works, followed by building control certificates of completion in April 2010.
In October 2010, the appellant obtained a further full planning permission that omitted the “ancillary occupation” condition and permitted use of the stable block as a separate dwelling, on condition that certain alterations were made to protect the amenity of occupants of the main dwelling; these included certain windows being obscure glazed and fixed shut.
The appellant applied to the respondents for a refund of VAT incurred on the conversion, pursuant to the DIY housebuilders scheme under section 35 of the Value Added Tax Act 1994 concerning the conversion of non-residential buildings into dwellings. The respondents refused the refund on the ground that, by reason of the occupancy condition in the earlier planning permissions, the development failed to meet the requirement in note 2(c) to Group 5 in Schedule 8 of the Act that the separate use or disposal of the dwelling should not be prohibited by the terms of any covenant, statutory planning consent or similar provision.
The appellant appealed. Although he accepted that the existence of an “ancillary occupation” condition at the time when the conversion works were completed would be fatal to his claim, he argued that the later removal of the condition by the October 2010 permission should be treated as retrospective for the purposes of VAT relief.
Decision: The appeal was dismissed.
The “ancillary occupation” condition in both the 2007 and the 2008 planning permission prohibited anything other than occupation ancillary to the residential use of the main dwelling and specifically prohibited the use of the stable block as a separate dwelling. Those conditions precluded the development from satisfying the requirements of note 2(c) at all times up to the granting of the final planning permission in October 2010, which was well after the conversion works were completed: Commissioners for HM Revenue and Customs v Lunn [2009] UKUT 244 (TCC); [2010] STC 486; [2009] PLSCS 150 applied. The local planning authority had not intended, and had not been asked, to issue a retrospective decision that might have overcome the problem; the permission expressly indicated that it was the proposed amendments to the development that would enable it to be occupied independently. The October 2010 permission, in so far as it removed the “ancillary occupation” condition, was not merely correcting an obvious error in the earlier permissions. Those permissions were valid and enforceable at all relevant times; the fact that the planning authority had later agreed to the removal of the condition did not affect that view. Consequently, the appellant was not entitled to a VAT refund.
Alan Rashleigh, of Alan Rashleigh & Co, appeared for the appellant; Harriet Jones, presenting officer of HMRC, appeared for the respondents.
Sally Dobson, barrister
