Property consisting of residential and non-residential areas — Respondent converting property into single dwelling — Whether VAT payable on building supplies for purpose of converting non-residential area — Appeal allowed
In 1998, the respondent purchased a former public house and was granted planning permission to convert it into a single family dwelling. The building had comprised half residential and half business use, the two areas being separately accessed. The respondent claimed a refund of the VAT that had been charged on goods and services attributable to the conversion works. This was challenged by the appellants.
At first instance, the Value Added Tax and Duties Tribunal allowed a refund in respect of the VAT that had been levied on those supplies used in converting the previously non-residential parts of the building to residential use. It maintained that note (9) in Group 5 of Schedule 8 to the Value Added Tax Act 1994 had no application to the construction of section 35(1D) of the Act.
The appellants appealed that judgment on the grounds that: (i) the works amounted to a residential conversion, upon which VAT would be refundable under section 35(1D), only if they converted the non-residential part of the building into a dwelling; and (ii) read in conjunction with the requirements of note (9), that conversion had to result in the creation of an additional dwelling.
Held: The appeal was allowed.
Under Group 5 of Schedule 8 to the 1994 Act, a developer who was a taxable person, and who was making the supply of goods and services in the course of his business, would be able to recover, as input tax, the VAT charged on supplies to him of goods and services. This refund did not apply to a person carrying out works other than in the course of his business; that person would be covered by the provisions of section 35.
Both Group 5 and section 35 were to be construed in accordance with the notes contained in Group 5. The purpose and effect of note (9), taken in conjunction with note (7), was to give a restricted meaning to the expression “converting… a non-residential part of a building”. This meant that, in a situation where, prior to conversion, a building consisted of a residential and a non-residential area, the conversion of the non-residential part would not fall within Group 5 unless the conversion were to create an additional dwelling or dwellings.
In this instance, the conversion had not created an additional dwelling. The judge at first instance had erred in holding that note (9) did not apply to the construction of section 35(1D). As a result, VAT was chargeable on the supplies used in converting the non-residential part of the property.
Melanie Hall QC and Jeremy Hyams (instructed by the solicitor to the Commissioners for Customs & Excise) appeared for the appellants; Susan Prevezer QC and David Scorey (instructed by Glynnes, of Norwich) appeared for the respondent.
Vivienne Lane, barrister
