Residential conversion of former school — Whether VAT refundable — Tribunal finding building as a whole non-residential although containing residential elements — Whether tribunal’s approach wrong in law — Section 35(1D) of Value Added Tax Act 1994 — Applicability of note (9) in Schedule 8 to 1994 Act — Appeal dismissed
The respondent converted a former school, incorporating a new dwelling for himself and three flats for staff. He subsequently sought to claim back the VAT that had been incurred on the building works, arguing that these qualified as a “residential conversion” and were accordingly zero-rated for VAT purposes. Section 35(1D) of the Value Added Tax Act 1994 defined a residential conversion as works consisting of “the conversion of a non-residential building, or a non-residential part of a building” into a building designed as a dwelling or dwellings, or intended to be used solely for a residential purpose. The school had previously contained bedsits for the school staff, a flat for the headmaster and dormitories for boarding pupils.
The appellant commissioners took the view that no tax was refundable, but the VAT and Duties Tribunal overturned that decision on appeal. Although the tribunal found that certain elements of the building had been residential, it decided that the building had, when considered in its entirety, been non-residential because it had served primarily as a school and the residential accommodation had been ancillary to that purpose. The tribunal held that the respondent’s works were to be treated as a conversion of the “whole building”, rather than of a part, so that note (9) in Schedule 8 to the 1994 Act did not apply. Note (9) provided that the conversion of a “non-residential part of a building which already contains a residential part” would not be zero-rated unless the works resulted in the creation of additional dwellings. The commissioners appealed, contending that note (9) was applicable, and that the staff flats could not constitute additional dwellings because they had been converted from the original residential accommodation.
Held: The appeal was dismissed.
Given that the school had contained residential accommodation, the tribunal’s “whole building” approach was inconsistent with binding case law. The conversion of an entire building, part of which consisted of residential accommodation, had to be treated as a conversion of a “non-residential part of a building which already contains a residential part” within the meaning of note (9): Commissioners of Customs & Excise v Blom-Cooper [2002] EWHC 1421; [2002] STC 1061 applied. However, the commissioners’ argument on the issue of the additional dwellings would be rejected. It was more consistent with the policy of the 1994 Act to construe the “conversion” referred to in note (9) as meaning the conversion of the entire building, so that tax would be irrecoverable only if the conversion did not result in an additional dwelling, notwithstanding the fact that the additional dwelling might have been created from a part of the building that had previously been residential. Even if this were wrong, the respondent could recover tax in respect of at least two of the staff flats, which, in part, had been constructed from non-residential areas of the school.
Peter Mantle (instructed by the solicitor to Customs & Excise) appeared for the appellants; Richard Barlow (instructed by Cooper Parry LLP, of Derby) appeared for the respondent.
Sally Dobson, barrister
