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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Poultries Al Hilal Ltd v Revenue & Customs [2007] UKVAT V20381 (27 September 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20381.html Cite as: [2007] UKVAT V20381

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20381

Value Added Tax — do-it-yourself builder's scheme — relief refused — VATA1994 s 35 (1) (b) Group 5) —– agricultural building occupied by farm worker constructed by limited company — built in the course of furtherance of the business — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

POULTRIES AL HILAL LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David S Porter

Jon P M Denny

Sitting in public in Manchester on 6 September 2007

The Appellant acting through its managing director Syed A Hussain

Mrs Kim Tilling of the solicitors' office instructed by Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1. In this appeal Syed A Hussain, Managing Director of the Appellant, challenges the Respondents' decision set out in a letter dated 10 January 2007 that the Appellant does not qualify for a refund of the VAT of £5410 incurred in the construction of a dwelling known as The Lodge, Mount Pleasant Farm, Nutt Lane, Simister M25 2SJ. The claim was made in accordance with section 35 of the Value Added Tax Act 1994 which sets out the statutory provisions relating to what is known as the do-it-yourself builder's scheme. The Respondents say that the Appellant has not satisfied the requirements of the scheme, and its claim for the refund must be rejected.
2. Mr Syed Asfaq Hussain represented the Appellant and Mrs Kim Tilling represented the Respondents. We heard evidence from Mr Hussain on behalf of the Appellant. We were provided with various documents including details of the planning applications and copies of the appropriate planning consents.
3. Mr Hussain referred us to the tribunal case of:

? Michael Patrick Curry number 20077

? Mrs Tillinng referred us to the following tribunal cases:

? Mr and Mrs L Watson number 18675

? Hugh William Flynn number 16930

4. Mr Hussain explained that he had started the Quail Poultry business in 1978. He had built the farm house where he was now living, and which he had subsequently bought from the Appellant. The Appellant owned all the other farm buildings and about seven acres of land. A planning application was made in November 1991 by the Appellant to build an agricultural dwelling. The application was supported by a report from MAFF/ADAS on 3 October 1991. At clause 5(c) the report considered it was essential that two full time persons employed by the business needed to reside on the holding, which in practice meant Mr Hussain and one other man. It was important to have living accommodation close to the established intensive poultry units so that immediate assistance was available in the event of the failure of the sophisticated environmental control systems. Mr Hussain declared that he was no longer prepared to get up in the middle of the night to attend to the system and needed to delegate the task to an employee. Planning permission was granted for the proposed new accommodation and also for a temporary residential caravan. The caravan was located on the site and was occupied for some two years by one of the farm workers, however, his girl friend refused to live in the caravan and he moved out. Other workers were not prepared to live in the caravan and as the first planning permission had expired a second application was made on the same basis as the first. Outline planning permission was granted to the Appellant for one agricultural dwelling on 16 Septembers 1997. Item 3 of the reasons for the restriction to an agricultural dwelling stated:

"3. The site is within the Green Belt and the erection of a dwelling not connected with agriculture or forestry would not normally be permitted"

5. Mr Hussain confirmed that the property had been built by the Appellant utilising £42,000 of its reserves with a loan to the Appellant from himself and his wife (two of the shareholders in the Appellant) of £30,000. The building work started in September 2002 and was eventually finished in August 2006. The property was owned by the Appellant and it was hoped that the property would increase in value to the Appellant's benefit. His two children were the other shareholders in the business.
6. The principal business of raising quails had originally been run by Mr Hussain in his own name. He subsequently formed the Appellant. However a limited partnership was set up, which ran the principal business and the Appellant effectively allowed the partnership the use of its buildings. We were told that the principal business which had been turning over £189,000 in 1999 was eventually run down and ceased trading in 2003. The Appellant continued in business at the farm, which consisted principally of grazing for horse owners, turning over £5600 in 2000 and about £800 latterly. Mr Hussain said that there was still work to be done on the farm and as a result the property had been let to a farm worker at a reduced rental as he looked after the farm. This consists principally of grazing rights for horse owners. In fact the Appellant's web site identifies that the Appellant's business consist of:

Development & Sell real estate

Business management consultancy

0130 Crops combined with animals, mixed farm

1571 Manufacture of prepared farm animal feeds.


Mr Hussain conceded that he had formed the Appellant and he had decided that these were activities that the Appellant might wish to pursue.

The law

7. Section 35 states:

"35(1) Where-

(a) a person caries 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

(1A) the works to which the section applies are –

(a) the construction of a building designed as a dwelling or number of dwellings

(b) …

(c) …"

Summing up

8. Mrs Tilling submitted that the relief given by section 35 is to allow a person who builds a domestic accommodation to recover the VAT incurred in building the property. This places the Do-it-yourself builder in the same position as a commercial builder. The section requires that the building works must be lawful and must be other than in the course or furtherance of any business. The Property was owned and constructed by the Appellant. The planning permission was limited to an agricultural dwelling. The building in fact was occupied by a farm worker who looked after the farm business. The web site indicates that the Appellant is still in business and although it was not making a lot of money, accounts were still being struck on an annual basis. As a result the property was constructed for the purposes of the farm business and the business test applied.
9. Mr Hussain argued that even though the building could only be used for agricultural purposes that did not affect the relief for VAT purpose. Section 35 refers to the "carrying out of the works" as being lawful. The Appellant had constructed the building in accordance with Local Authority regulations and had therefore complied with the lawfulness test. The section referred to "any" business not "a" business. He said that the Appellant is in the business of hatching quail eggs, rearing the birds and selling the adult birds. That has nothing to do with the building industry. The section is designed to relieve a private individual who builds a Propety (as a builder would) for his own use. He said that the business activity has therefore to be a building activity. The Appellants are not builders. The property had been built in the long term as a dwelling house for his family and therefore qualified for the relief

The decision

10. We dismiss the appeal. Whilst Mr Hussain's argument is ingenious it misses the point. Section 35 is a relieving provision and is designed to assist individuals who are not and do not wish to register for VAT purpose. Businesses have the opportunity to reclaim VAT on building costs if the property is to be used for the purposes of its businesses. If the building had been sold to the partnership and they had carried out the work, or, indeed, if the Appellant had retained its VAT registration and carried out the work then the VAT would have been recoverable as the building was undoubtedly constructed for the furtherance of the poultry and farming business. The planning permission, in this case, makes it abundantly clear that the property it is to be used for the purposes of agriculture. We do not understand Mr Hussain's suggestion that the only business which can be in contemplation is that of a builder. The section clearly identifies that the relief will not be granted if the building has been constructed "in the course or furtherance of any business". The building in question has been constructed for agricultural purposes for the furtherance of the Appellant's business. The Appellant owns the property and sought the assistance of MAFF to justify its construction. Mr Hussain conceded that the property had been let to his agricultural worker at a discounted rent because he was working on the farm-repairing the roads, fences and other maintenance work arising from the care of the horses which were on the farm land. There cannot be a clearer example of a dwelling being "constructed in the course or furtherance of any business". We dismiss the appeal and as the Commissioners did not ask for any costs none are awarded

DAVID PORTER

CHAIRMAN
Release Date: 27 September 2007

MAN/07/0447