VAT refund – DIY housebuilders scheme – Section 35 of Value Added Tax Act 1994 and condition 4(2)(c) thereto – Appellants constructing farmhouse pursuant to planning permission – Permission requiring use of farmhouse to be ancillary to agricultural use of site not to be disposed of separately from remainder of site – Whether appellants qualifying for VAT refund on construction project – Whether failing to meet condition 4(2)(c) as to absence of prohibition on separate use or disposal of dwelling – Whether that condition applying where no other buildings on site – Appeal dismissed
In December 2006, the appellants obtained outline planning permission to construct a farmhouse on land that already contained various open-sided steel sheds and steel containers, a building that housed a generator and a mobile home. The permission as granted was for “the erection of an agricultural dwelling” and, in addition to limiting occupation to persons connected with local agriculture, contained a condition to the effect that “The proposed development shall always remain ancillary to the existing agricultural use of the site and shall not be sold, leased nor otherwise disposed of separately from, the remainder of the premises”. Reserved matters approval was subsequently granted, with a condition that the requirement for the functionality of the farm business outweighed the project’s non-compliance with planning guidance in PPS 7.
The appellants built the farmhouse themselves as a self-build project and subsequently claimed a VAT refund of £13,082.81 on it pursuant to the DIY housebuilders scheme under section 35 of the Value Added Tax Act 1994. The refund was refused on the ground that the conditions contained in the notes to section 35, as set out in Schedule 8, had not been met; the respondents took the view that the separate use or disposal of the dwelling was prohibited by the terms of the planning permission such that condition 4(2)(c) was not fulfilled.
The appellants appealed. They contended that: (i) “separate use or disposal” in condition 4(2)(c) meant separate from any other pre-existing dwellings or buildings; (ii) condition 4(2)(c) was intended to prevent the recovery of VAT on new accommodation that was built as an improvement to existing buildings and ancillary to them rather than as a new-build dwelling; and (iii) that condition did not apply in their case since the pre-existing structures on the land did not qualify as buildings or dwellings and the new farmhouse stood alone on its plot.
Held: The appeal was dismissed.
The wording of condition 4(2)(c) was such that the planning consent need only prohibit either the separate use or the separate disposal of the property for it not to be considered a dwelling for the purposes of section 35 of the 1994 Act. The conditions in the appellants’ original planning permission and the reserved matters prevented the sale of the farmhouse other than with the rest of the farm. The planning permission had been granted in exceptional circumstances, contrary to the overall planning requirements of the area. The planning authorities had no doubt been concerned that the farming activity that the property supported should continue. They wanted to retain the agricultural nature of the area and could not allow the farm land and the outbuildings to be separated from the new farmhouse. In light of the comments as to the functionality of the farm business referred to in the reserved matters, there was no doubt that the farmhouse formed part of a working farm. It had not been inappropriate for the planning authority to require the entire site to be a single unit and to be disposed of accordingly. The proposed development could not be separately sold, leased or otherwise disposed of without the remainder of the premises. The lack of any other building on the remainder of the premises did not affect the construction of the prohibition in the planning consent. Consequently, condition 4(2)(c) applied, since the planning permission and reserved matters prohibited the separate disposal of the new building: Commissioners for HM Revenue & Customs v Lunn [2009] UKUT 244 (TCC); [2010] STC 486 35 considered. It followed that section 35 of the 1994 Act did not apply and the supplies involved in the project were to be standard-rated.
John Harris FCA, of Berry Accountants, appeared for the appellant; Christopher Shea, of HM Revenue & Customs (instructed by the legal department of HM Revenue & Customs) appeared for the respondents.
Sally Dobson, barrister
