[2013] UKFTT 81 (TC)
TC02499
Appeal number: TC/2011/3605
VAT – alterations to listed
building – Item 3 Group 6 Sch 8 VATA – replacement of windows with new triple
glazed windows – not repair or maintenance; costs – whether HMRC acted
unreasonably in defending appeal.
FIRST-TIER TRIBUNAL
TAX CHAMBER
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LESLIE WALLIS
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
ENVOYGATE
(INTALLATIONS) LIMITED, trading as THE ORIGINAL BOX SASH WINDOW CO
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Second
Respondents
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TRIBUNAL:
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JUDGE CHARLES HELLIER
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KAMAL HOSSAIN
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Sitting in public at Bedford Square WC1B 3DR on 7 September 2012
The Appellant in person
Mr Robinson for the First Respondents
The Second Respondent was not
represented
© CROWN COPYRIGHT
2013
DECISION
Absence of the Second Respondent.
1.
We proceeded in this appeal in the absence of the second respondent. Mr.
Fernandez, one of its directors, had been suffering from ill health and had
written to the tribunal before the hearing saying that he was unable to attend.
We thought it was just to proceed in the absence of representation for the
company since (1) the determination of the proper VAT rating for its supplies
had already been conceded by HMRC and would not adversely affect it, and (2)
the company's actions in relation to the appeal before this tribunal consisted
only of agreeing to be added as a party: in relation to this appeal there was
no prospect of our awarding costs against it because it had done nothing else in
the appeal either reasonable or unreasonable.
Background
2.
Mr. Wallis replaced the Windows in his house. The old windows did not
need repair. They were replaced by new state-of-the-art triple glazed windows The
object of the change was to achieve better insulation. His house was a listed
building and he obtained consent to the replacement from his local planning
authority.
3.
In March 2011 Mr. Wallace wrote to HMRC requesting a ruling that the
work was zero rated within item 3 group 6 Schedule 8 VAT Act 1994. He set out
clearly the nature of the operations.
4.
Mr. Wallace needed the ruling in order to persuade the supplier of the
new window installation not to charge VAT on the supply. The supplier is the
second respondent in this appeal.
5.
On 8 April 2011 Mrs Cullender of HMRC replied. She concluded, by
reference in part to HMRC's published guidance that the works were repair and
maintenance (or incidental thereto) and were therefore not zero rated by item 3
group 6.
6.
On 5 May 2011 Mr Wallis made an appeal to this tribunal against HMRC's
decision. In his notice of appeal he set out very clearly his reasons for his
belief that the ruling was wrong.
7.
The tribunal replied on 27 May 2011 indicating that it would invite the
supplier to join the appeal. Mr. Wallace consented to this on 28 May. The
tribunal invited the supplier to be joined on 15 July and on 18 July 2011 the
supplier indicated that it did not object to being joined. The supplier was
joined as second respondent by a direction of the tribunal given on 25 October
2011.
8.
On 5 September 2011 Mrs Ratnett of HMRC sent HMRC's statement of case to
the tribunal. That she noted that the planning application stated that "no
alteration to the layout or appearance of the building is proposed... outwardly
the new windows will be identical to the existing windows. The existing
external render is not disturbed by these proposals." She then said:
“5.10 The respondents contend that the relevant question
is not the repair of the particular constituent part in isolation but the
repair and maintenance of the building as a whole. The work of replacing the
old windows with outwardly identical but more energy-efficient windows is for
the purpose of the maintenance of the building as a whole.
5.11 If there was any alteration in respect of the
aperture being widened slightly in order to accommodate the hardwood frame,
this was incidental to the repair work and still excluded from zero-rating."
9.
Then the parties set about the preparation for the hearing. But on 27
October Mr. Wallace wrote to HMRC noting that HMRC had corrected their original
guidance, and requested HMRC to reconsider their ruling, expressing the hope
that in the light of the change a hearing might be avoided.
10.
On 23 November 2011 Mrs Ratnett wrote to Mr. Wallis to say that HMRC did
not intend to defend the appeal. On 24 November Mr. Wallis wrote to the
tribunal expressing the wish that the hearing took place formally to record
HMRC's change of interpretation,and to deal with interest on the VAT wrongly
collected and his costs in pursuing the appeal.
11.
On 5 December 2011 the supplier wrote to Mr. Wallis seeking payment of
£500 plus VAT for its involvement in the appeal and the correspondence with Mr
Wallis relating thereto. On 5 March 2012 Mr. Wallis wrote to the tribunal to
say that in relation to the £3481.69 of the VAT charged by the supplier (which
should not have been charged because the supply was now accepted as being zero
rated) he had reached a compromise with the supplier and had received £2804.31.
He would plainly wish to recover the difference from HMRC as costs of his
appeal.
The parties' submissions.
12.
Before us and in his statement of case Mr. Wallis seeks the following
result:
“1. Indicative costs
Interest on the VAT incorrectly collected £250
Reasonable expenses incurred in bringing this case £500
Total costs £750.
2. That [the Second Respondent] be instructed to cancel
its invoice number 12249 dated 7/03/2011 in the sum of £600 (inclusive of VAT)
and refrain from issuing further invoices for the period 7 March 2011 to the
date of the hearing."
13.
Mr. Wallis says that the legislation is clear: "alteration",
"repairs" and "maintenance" are straightforward words in
common English usage; and that the works he paid for were clearly alterations
and not repairs and maintenance. He says that it was unreasonable for HMRC not
to interpret the words correctly or to apply the legislation to his facts
correctly. His correspondence with the supplier as a result of HMRC's actions
had been costly and protracted.
14.
Mr. Robinson said that HMRC’s position had hinged upon its internal
guidance. When the appellant pointed out the change in that guidance Mrs Ratnett
indicated that HMRC would not defend the appeal and the supplier was notified.
The supplier reclaimed VAT and refunded Mr. Wallis. HMRC's actions during the
conduct of appeal had been reasonable. The tribunal, he said, could award costs
only if HMRC had acted unreasonably in the conduct of the appeal.
Discussion
(1) The applicable rate of VAT.
15.
On the facts as we understand them the fitting of the new windows to Mr.
Wallis' house was an alteration to that house. Mr Wallis said, and we accept,
that the windows which were replaced were no more than 15 years old and in good
repair. Their replacement with new windows was not in our view repair or
maintenance but was an alteration of the building. The supply made by the
supplier therefore fell within item 3 Group 6 Schedule 8 VAT Act 1994 and was
zero rated. HMRC were right to withdraw their defence of the appeal.
(2) Extent of our jurisdiction
16.
This tribunal is given jurisdiction in relation to VAT appeals by
section 83 VAT Act 1994. By paragraph (b) that jurisdiction includes that in
relation to an appeal against a decision made by HMRC in relation to the VAT
chargeable on a supply. Thus we have jurisdiction in relation to the appeal Mr
Wallis makes against HMRC’s decision. Pursuant to that power we have made the
decision in the preceding paragraph. That jurisdiction extends to costs in the
proceedings (see (3) below) but no further.
17.
We understood Mr. Wallace's frustration in relation to the initial decision
of HMRC and the difficulty he had in getting the price payable under his
contract with the supplier reduced; further, on the limited material before us
we thought that the supplier might perhaps have been more cooperative and might
perhaps taken some initiative of its own in relation to the incidence of VAT on
supplies of this nature. But we have no jurisdiction in relation to the
relationship between Mr. Wallace and his supplier. Whether Mr. Wallace was
bound to make payment of £500 plus VAT sought by the supplier, and whether or
not the supplier should refrain from issuing further invoices is not a matter
for us. The relationship between Mr. Wallace and his supplier is a matter for
the civil courts. The remedy sought by Mr. Wallace in item 2 of para[12] above
is not something which we can consider.
18.
Likewise we have no jurisdiction in relation to the interest cost which
Mr Wallis may have suffered as a result of having to pay more than he ought to
have paid for the replacement of the windows because VAT was wrongly charged.
(3) Costs
19.
Section 29 of the Tribunals, Courts and Enforcement Act 2007 provides
that subject to a tribunal’s rules, the “costs of and incidental to...proceedings
in the First Tier tribunal” shall be in the discretion of the tribunal. Rule 10
of this tribunal's rules provides:
"(1) The tribunal may only make an order in respect
of costs (or, in Scotland, expenses)-
(a) under section 29 (4) of the 2007 Act (wasted costs);
(b) if the tribunal considers that a party or their
representative has acted unreasonably in bringing, defending or conducting
proceedings; or
(c) if [the case is a Complex case and the taxpayer has
not sought exclusion of potential liability of costs].”
20.
It will be seen that these rules mean that there are only three
circumstances in which the tribunal can award costs.
21.
The first (para (a)) is wasted costs. This, by section 29 of the 2007
Act (the Tribunals, Courts and Enforcement Act 2007), relates to the “improper,
unreasonable or negligent act or omission” of a party’s representative. The
tribunal may disallow the recovery of such costs (where a party is seeking to
recover his costs from another) – not relevant in this case - or award costs
directly against the representative. It seems clear to us that HMRC’s
representative, Mrs Ratnett, did not act improperly or negligently; so far as
acting unreasonably is concerned that question is discussed in relation to para
(b) after the following paragraph. But Mr Wallis has not sought an order that
Mrs Ratnett or Mr Robinson pay the costs personally and we would not think it
fair in this appeal so to order. This paragraph therefore is not relevant in
this appeal.
22.
The third (para(c)) applies where a case is a Complex Case. This case is
not such. This heading does therefore not apply.
23.
Thus our jurisdiction in relation to costs in this appeal is limited to
para (b) and we may make the order sought by Mr Wallis only if we consider
that HMRC or the supplier was unreasonable in either (i) defending or (ii)
conducting the appeal (plainly neither HMRC nor the supplier were “bringing”
the appeal).
24.
Because the 2007 gives us power in relation to the costs of
“proceedings” we do not have power to award costs in relation to actions which
took place before proceedings started. Those actions might affect whether
defending the appeal was reasonable, but the costs which may be awarded are
limited to those of the proceedings. Thus costs incurred by Mr Wallis before he
gave his notice of appeal must be excluded from our considerations.
25.
So far as the supplier is concerned, it was not defending an appeal. The
only possible ground on which we could award costs against it would have been
if it was unreasonable in its conduct of the appeal. But we cannot say that the
supplier has in these proceedings acted unreasonably – for these proceedings
related to the determination of the correct rate of VAT, not to questions of
payment or cooperation with Mr Wallis or HMRC. It did, and needed to do, almost
nothing in the proceedings.
26.
That brings us to the question of whether an order for costs should be
made against HMRC. In this context we note that Mr Wallis put his case cogently
and very clearly in his notice of appeal, and that his argument is now accepted
by HMRC as correct.
27.
It seems to us that it cannot be that any wrong assertion by a party to
an appeal is automatically unreasonable. After all the result of any appeal is
that one party is found to be wrong. The rules clearly do not intend that just
because a party is wrong that party should be ordered to pay the other's costs
(otherwise the specific provision for Complex cases would make no sense). In
our judgement before making a wrong assertion constitutes unreasonable conduct
in an appeal that party must generally persist in it in the face of an unbeatable
argument that he is wrong. Thus for example a party who persists in a legal
argument which is precisely the same as one recently dismissed by the Supreme
Court and which has been drawn to his attention, or who proceeds on the basis
of facts which that party accepts, or can only reasonably accept, are wrong, could
be acting unreasonably in defending or conducting the appeal. Unreasonable
conduct of the appeal is in our view more likely to be found in the way in
which an appeal is pursued – in for example the unnecessary examination of
witnesses or the lengthening of an appeal with irrelevant or unnecessary
evidence or behaviour.
28.
In this case HMRC put forward in its statement of case an argument which
could possibly, had the facts and been found to be slightly different, have turned
out to have been right. That argument might have succeeded, for example, if the
tribunal had not accepted that the old windows were in good condition. It also
possible that an argument may have been put which had some slim chance of
success that the maintenance of a building included upgrading its energy
efficiency or that there was no real alteration to the building. We are
therefore not persuaded that HMRC were unreasonable (or that Mrs Ratnett acted
unreasonably) for the purposes of Rule10 when they chose, by supplying their
statement of case, to defend the appeal.
29.
Nor do we consider that HMRC were unreasonable in their conduct of the
appeal thereafter. Mrs Ratnett acted reasonably quickly to withdraw HMRC’s
defence after Mr Wallis drew to her attention HMRC’s change of guidance.
30.
We therefore conclude that we should not make a direction that HMRC pay
Mr Wallis’ costs in these proceedings.
31.
The appeal however is formally allowed.
32.
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.
CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 23 January 2013
