VAT – Zero-rating – Construction of building – Appellant appealing against the refusal of the respondent Commissioners to allow its claim for repayment of input tax on the sale of a property as an exempt supply of land – Whether garden wall being part of a building designed as a dwelling – Whether building designed as a dwelling being constructed – Appeal dismissed
The appellant was a development company which acquired a property in the St George’s Hill Estate in Weybridge, Surrey. Planning permission was granted to demolish the property and construct a detached house on the site. The property was demolished and a prospective buyer found. The purchaser wanted a substantial boundary wall to be built which was completed by the date of sale. Due to the height of the wall, a new, express, planning permission was required. A retrospective application was granted with prospective effect.
The appellant company claimed input tax on the basis that the sale of the property constituted a zero-rated supply. The respondent commissioners took the view that the construction of the wall was part of the demolition of the old property and not part of the construction of the new property. Therefore, the sale constituted an exempt supply of land and the appellant was not entitled to claim input tax. In those circumstances, the respondents issued a notice of assessment in the sum claimed.
The appellant appealed to the First-tier Tribunal. The issues which arose were: (i) whether the wall was a “building” for the purpose of Group 5 of Pt II of Schedule 8 to the Value Added Tax Act 1994; and (ii) if so, whether, applying the interpretive provisions of Note 2(d) to Group 5, the company was constructing a building “designed as a dwelling” within Item 1 of Group 5.
Held: The appeal was dismissed.
(1) The use of the present tense word “constructing” in the expression “person constructing a building” in Group 5 made it clear that a partially completed building would suffice, but there had to be something which answered the description of a building. To fall within Item 1 of Group 5, such a building had to be “designed as a dwelling”. The expression “building” had to be given its ordinary meaning, which could include a structure. The wall was clearly a substantial structure above the ground capable of being a building. The building of the wall was not preparatory; it was the first stage on the continuum of construction. A building could comprise more than one building, a building designed as a dwelling could therefore include “buildings designed as a dwelling”. In that context, “dwelling” could fairly be interpreted as meaning a house together with the other buildings on the site which were an integral part of the property as a whole. A person buying a dwelling would be surprised to be told that only the house was included and that the separate garage, swimming pool or garden walls were not part and parcel of his purchase. The wall was therefore a building, it was part of the dwelling being constructed on the site and, at the time of the supply for VAT purposes, the appellant was a “person constructing a building designed as a dwelling”: Stapenhill Developments v Customs and Excise Commissioners [1984] VATTR 1, Cameron New Homes Ltd v Customs and Excise Commissioners LON/01/49 and Catchpole v Revenue and Customs Commissioners [2012] UKFTT 309 (TC) considered.
(2) Note 2 provided that a building was designed as a dwelling if four conditions were satisfied. It was accepted that conditions (a), (b) and (c) were satisfied. Condition (d) required that planning consent had been granted in respect of the dwelling, and that its construction “has been carried out in accordance with that consent”. In the present case, there was no planning permission in place at the date of sale permitting the building of the wall. By the time the development was completed, the wall was covered by valid planning consent. The critical question therefore concerned the date at which Note 2(d) had to be satisfied. Item 1(a) permitted zero rating in relation to the first grant by a person constructing a building designed as a dwelling. The relevant grant in this case was the sale of the property. The apparent discord between Item 1(a) and Note 2(d) could be reconciled in a way which did not strain the language of the legislation and was consistent with the scheme of the Act. Item 1(a) applied where there was the supply of a building designed as a dwelling which was in the course of construction. Accordingly, there did not need to be a completed building at the time of the supply. However, there had to be some part of the building designed as a dwelling which was above the foundations. Where a building in the course of construction was supplied, Note 2(d) was not meant to be applied retrospectively once the building had been completed, on the basis that there was then some planning permission in place so the original supply could be zero-rated. That construction placed a strain on the language of the 1994 Act and an even greater strain on common sense and the structure of the VAT regime. VAT was charged, or not, at the date of supply and the status of the supply had to be established at that time. It could not be right that events happening after that time, such as obtaining a retrospective planning consent, could affect the VAT treatment. There would otherwise be no certainty, either for HMRC or for the taxpayer, as to VAT liabilities or entitlements, possibly until years after the event. Therefore, Note 2(d) and the conditions for zero-rating of the supply were not satisfied in the present case.
Christiaan Zwart (instructed by Licensed Access by VATAdviceline) appeared for the appellant; Amadul Qureshi (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read transcript: Cavendish Green Ltd v Commissioners of HM Revenue and Custom
