[2012] UKFTT 108 (TC)
TC01804
Appeal number
TC/2010/08141
VAT -Section
35 VAT Act 1994 – the DIY Refund Scheme- HMRC refused the claim by the
Appellants for a VAT refund on the grounds that at the time the development
took place the correct statutory planning permission was not in place –
Appellants had done all that was required of them but the planning permission
produced by the council was inadequate – appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
MR
and MRS KENNETH JONES Appellants
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
S.M.G.RADFORD (TRIBUNAL JUDGE)
J.R
CHERRY
Sitting in public at 45 Bedford Square, London WC1 on 1 December 2011
Mr Alan Ogilvie for the
Appellants
Mr Philip Rowe for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against HMRC’s decision dated 22 July 2010 that the Appellants’ claim for a refund of VAT under the DIY Refund Scheme (“the DIY Scheme”) should
not be allowed.
2. The
Appellants claimed that HMRC had seized on a technicality to deny the claim.
3. Mr
Jones gave evidence on behalf of the Appellants.
Background and facts
4. Mr
Jones gave evidence that the Appellants had bought a bungalow in Kent as a retirement home with the intention of demolishing it and rebuilding.
5. Their
London solicitor assisted with the sale of their London house and the purchase
of the Kent bungalow.
6. The
solicitor was aware of their intention to demolish the bungalow and rebuild it
and put them in touch with a London architect who prepared the plans and sent
them to Swale Borough Council (“SBC”) for planning permission.
7. The
SBC approved the plans on 29 March 2006 and the Appellants presumed that all
was well. However although the SBC frequently referred in subsequent
correspondence to “replacement of 3 bed dwelling at 6 Shurland Avenue”, all that
the planning permission stated was “to increase ridge height of roof, side and
rear extension and front bay windows”.
8. All
of the old building was demolished and the Appellants lived in a caravan in the
garden while the work was being carried out. Each stage of the work was
monitored by the building control department of the SBC.
9. At
one point a dispute on a new window arose and the SBC issued a stop notice.
10. Nothing however
was mentioned about a lack of planning permission for the demolition.
11. An invoice for a
site inspection fee for the “replacement 3 bed dwelling” was produced by SBC
and paid by the Appellants on 11 May 2007.
12. A completion
certificate was issued in respect of a “replacement 3 bed dwelling” on 14 May 2010.
13. The Appellants
submitted a claim for a refund of VAT under the DIY Scheme. It was submitted by
Buchanans Accountancy Services on behalf of the Appellants. The form was dated 24 June 201 0. The form was incomplete and was returned to the Appellants by HMRC on its
date of receipt, 25 June 2010. It was only then that it was realised that
nowhere did the original planning permission mention the demolition.
14. In a letter
dated 6 July 2010 Buchanans informed HMRC that a planning irregularity had come
to light and the Appellants required retrospective planning permission.
15. A further letter
dated 19 July 2010 was received from Buchanans enclosing a letter from building
control relating to the planning consent which stated that it was confirmed
that a new property had been constructed on the same site as the previously
fully demolished bungalow.
16. On 22 July 2010 HMRC refused the Appellants’ claim on the grounds that relevant planning
permission was not in place at the time the demolition and new build took
place.
17. On 13 August 2010 the Appellants requested a review. The review upheld HMRC’s decision.
18. On 13 September 2010 retrospective planning permission valid from 26 July 2010 was granted by SBC.
19. In February 2011
the Appellants asked SBC to concede that the effective date of the planning
permission was prior to the work on the bungalow commencing. They referred the
SBC officer to the similar case of Watson v HMRC in which the judge had
stated that the “to succeed the Appellant would have needed the council to use
its powers under Section 73A of the Town and Country Planning Act 1990 to
backdate the consent”.
20. However the
planning officer refused and claimed that Section 73A(3)(a) did not mean that
planning permission could be granted from a date before the development was
carried out.
The Legislation
21. Section 35 (1) of
the VAT Act 1994 (“VATA”) states:
(1) Where—
(a) a person
carries out works to which this section applies,
(b) his
carrying out of the works is lawful and otherwise than in the course or
furtherance of any business, and
(c) VAT is
chargeable on the supply, acquisition or importation of any goods used by him
for the purposes of the works,
the Commissioners shall, on a claim made in
that behalf, refund to that person the amount of VAT so chargeable
22. Schedule 8,
Group 5 of VATA Note 2 states:
A
building is designed as a dwelling or a number of dwellings where in relation
to each dwelling the following conditions are satisfied—
(a) the
dwelling consists of self-contained living accommodation;
(b) there is
no provision for direct internal access from the dwelling to any other dwelling
or part of a dwelling;
(c) the
separate use, or disposal of the dwelling is not prohibited by the term of any covenant,
statutory planning consent or similar provision; and
(d) statutory
planning consent has been granted in respect of that dwelling and its
construction or conversion has been carried out in accordance with that consent.
23. Schedule 8,
Group 5 of VATA Note 16 states:
For the
purpose of this Group, the construction of a building does not include—
(a) the
conversion, reconstruction or alteration of an existing building; or
(b) any
enlargement of, or extension to, an existing building except to the extent the
enlargement or extension creates an additional dwelling or dwellings; or
(c) subject to
Note (17) below, the construction of an annexe to an existing building.
24. Schedule 8,
Group 5 Note 18 states:
A building
only ceases to be an existing building when:
(a) demolished
completely to ground level; or
(b) the part
remaining above ground level consists of no more than a single facade or where
a corner site, a double facade, the retention of which is a condition or
requirement of statutory planning consent or similar permission
25. The Town and
Country Planning Act 1990 Section 73A states:
Planning permission for work already carried
out
(1)
On an
application made to a local planning authority, the planning permission which
may be granted includes planning permission for development carried out before
the date of the application.
(2) Subsection
(1) applies to development carried out—
(a) without
planning permission;
(b) in
accordance with planning permission granted for a limited period; or
(c) without
complying with some condition subject to which planning permission was
granted.
(3) Planning
permission for such development may be granted so as to have effect from—
(a) the date
on which the development was carried out; or
(b) if it was
carried out in accordance with planning permission granted for a limited
period, the end of that period.
Appellant’s Submissions
26. Mr Ogilvie
submitted on behalf of the Appellants that the Appellants had meticulously
followed all the relevant procedures and had not realised that it was essential
that the word demolition appeared on the statutory planning permission.
27. The Appellants
had been guided at all times by the officers of the SBC and the word demolished
clearly appeared on the building plans.
28. He submitted that
he regarded the word “replacement” as meaning something that takes the place of
another and therefore as it appeared on the SBC stamp this should be sufficient
to satisfy HMRC.
29. He submitted
that if the SBC had issued a stop notice for a minor variation such as a window
it would clearly have issued a stop notice if the demolition and consequent new
build had not been approved.
30. He submitted
that it had been open to the SBC to backdate the permission to the date on
which the development had been carried out in accordance with Section 73A of
the Town and Country Planning Act and the statement made in the case of Watson
v HMRC.
31. He submitted
that the Appellants should not be refused their refund because of a mistake
made by the council and their officer’s failure to accept that the law allowed
the backdating of the permission to the date of the development.
HMRC’s Submissions
32. Mr Rowe stated
that HMRC had never doubted that the Appellants had acted in good faith, doing
exactly what the officers of the SBC had told them to do.
33. The SBC had
produced an inadequate planning permission which the inexperienced Appellants
had not realised was not suitable.
34. Whilst the
planning permission could not be backdated to before the development was
carried out, if the SBC had conformed to Section 73A and backdated the
retrospective planning permission to the date the development was carried out this
would have solved the problem.
35. However the
council had not done so and therefore HMRC had no option but to refuse the
claim for the refund. At the time that the development was carried out there
was no statutory planning consent in place for the
demolition of the building and a new build in accordance with Note 2(d) of
Schedule 8 Group 5 of VATA.
Findings
36. We found Mr
Jones’s evidence to be honest and sincere. It was clear from correspondence
with his solicitor which he produced which went right back to 2004 that from
the start the intention was to demolish the house and create a new build.
37. We found that
the Appellants had done everything correctly. They employed an architect to
produce plans for submission to the SBC and a local architect to conform to the
building regulations.
38. SBC had produced
an incorrect planning permission which did not accord with the plans submitted.
Their correspondence frequently referred to a replacement building and even
when on inspection they picked up a minor infraction in respect of a window
which did not conform to the permission they did not comment on the demolition
obviously believing that it was covered by their permission.
39. We had every
sympathy with the Appellants and in particular with the fact that the SBC
officer refused to correct the council’s mistake and backdate the permission
which could have been done when the permission was made retrospective. It was
disturbing that the SBC did not take account of the legislation which allowed
the permission to be backdated to the date the development was carried out.
40. However we found
that at the time that the development took place there was no statutory
planning permission in place for the demolition contrary to Note 2(d) of
Schedule 8 Group 5 of VATA.
41. As a result of
the strict requirements of the VAT legislation unfortunately we must therefore
dismiss the Appellant’s appeal but it is a matter of great concern to us that
as a result of the failings by SBC, the Appellants have been put to a great
deal of trouble, worry and expense. It is hoped that these failings will be
recognised by the SBC and appropriate steps taken to remedy the situation.
Decision
42. The appeal is
dismissed.
43. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 8 February 2012
