VAT – DIY housebuilders scheme – Value Added Tax Act 1994 – Dwelling – Planning permission for change of use of two buildings on site from light industrial use to live/work unit – One building to be converted into dwelling with other retained as workshop/office – Conditions requiring that workshop/office to be used only by occupiers of dwelling – Whether respondent entitled to refund of VAT incurred on conversion works to dwelling pursuant to section 35 of 1994 Act – Whether terms of planning permission prohibiting separate use or disposal of dwelling within meaning of note 2(c) to Group 5 of Schedule 8 to Act – Appeal dismissed
In 2010, the respondent obtained planning permission to convert two light industrial buildings into a “live/work unit” by turning one of them into a dwelling while retaining the other as a workshop or office. A condition attached to the permission provided that the workshop/office could only be used by the occupiers of the dwelling.
The respondent subsequently applied, under the DIY housebuilders scheme in section 35 of the Value Added Tax Act 1994, for a refund of VAT incurred on goods used for the conversion works on the dwelling. The respondents refused that application, taking the view that the building was not a “dwelling” as defined in note 2 to Group 5 of Schedule 8 to the 1994 Act and that it consequently fell outside the scheme; in that regard, they considered that the condition in note 2(c) was not fulfilled since the relevant planning permission prohibited the separate use or disposal of the dwelling.
That decision was reversed by the first-tier tribunal (FTT), which held that the condition in the planning permission: (i) did not actively prohibit the separate disposal of the dwelling, but merely made it unlikely that the owner would wish to dispose of it separately since that would leave him with a commercial building which he could not lawfully use; and (ii) did not prohibit the separate use of the dwelling since the owner could, in theory, leave the workshop/office empty and unused without breaching the condition, even if he was unlikely to do so in practice.
On appeal from that decision, the appellants contended that the FTT had failed to consider the description of the live/work unit in the planning permission. They contended that a planning authority could not grant permission for more than was applied for and that, where the respondent had sought permission for a live/work in which the dwelling would not be used separately, the planning permission was similarly restricted in its effect.
Held: The appeal was dismissed.
The terms of the planning application were relevant to the nature of the permission granted, first because planning permission could not be given for more than was applied for and, second, because the terms of the application were relevant to the construction of the permission. So far as the application had sought permission for the conversion of a light industrial workshop to a live/work unit, permission was sought, and granted, for a change of use that would apply to the site as a whole. However, that did not necessarily mean that the respondent was seeking a permitted use in which the dwelling could not be used or disposed of separately from the other non-residential part of the unit. The terms of the application could be construed as describing a place where a person could, but did not have to, both live and work. While the application indicated that the commercial and residential uses of the site were intended to be linked, and suggested that the two buildings would in fact be used together, it did not show that the respondent was applying for a restriction on the separate use of either building. The creation of a live/work unit could be effected either by a permission which restricted the separate use or disposal of the dwelling or by one which did not. Overall, neither in the use of the term “live/work unit” nor in any other part of the application did the respondent seek a permission which prohibited the separate use or disposal of the dwelling. The terms of the application did not require the permission to be construed as if it contained that restriction: Commissioners for HM Revenue and Customs v Shields [2014] UKUT 453 (TCC); [2014] PLSCS 338 considered.
The phrase “live/work unit” was not a term of art. On its own, the description “live/work unit” in the planning permission did not clearly indicate that the two buildings were not to be used separately. It could be read as conferring an ability for a person to dwell in one building and work in the other. Any doubt as to the extent of any restriction was resolved by the condition in the planning permission. Properly construed, the condition did not compel the occupiers of the dwelling to use or operate the workshop/office or restrict the permitted use of the dwelling to use by a person who also used the workshop/office. Instead, the restriction worked one way only. The condition restricted the persons who could lawfully use the workshop/office to the occupiers of the dwelling but it also contemplated that the workshop/office might not be used. The effect was that a person who occupied the dwelling had to be able to use the workshop/office but need not use it, but that a person who used the workshop/office had to occupy the dwelling. Accordingly, the use of the dwelling separately from the workshop/office was not prohibited.
Neither did the planning permission, either by its express terms or by implication, prohibit the separate disposal of the dwelling. The condition in the permission made the separate disposal of the dwelling or the workshop commercially unattractive, because the separate disposal of the dwelling would convey to the purchaser a building which could only be used as a live/work facility, namely a place where the occupier could both live and work, but the use of the dwelling without the right to use the workshop/office would be problematic, thus meaning that the value of the dwelling on its own might be very small. However, that effect was not a prohibition on separate disposal but merely a disincentive to separate disposal. Accordingly, neither the description of the development as a live/work unit, nor the terms of the condition, prohibited the separate use or disposal of the dwelling.
Christiaan Zwart (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Michael Jones (instructed by HSKS Greenhalgh, chartered accountants) appeared for the respondent.
Sally Dobson, barrister
Read a transcript of Commissioners for HM Revenue and Customs v Barkas here
