[2009] UKFTT 96 (TC)

TC00064
Appeal number:  EDN/08/132

DO-IT-YOURSELF HOUSEBUILDER:  refund of tax; residential conversion; reduced rate.

FIRST-TIER TRIBUNAL

TAX 

	GEOFFREY WILLIAMS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

			TRIBUNAL: 	Tribunal Judge:       J Gordon Reid, QC., F.C.I.Arb.,
					(Member):	        R L H Crawford, BA., CA., CTA	

Sitting in public in Edinburgh on Monday 12 January 2009

Geoffrey Williams - for the Appellant

Richard Shaw - instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction
1.	This appeal relates to the refusal, in part, to grant a claim for a refund of VAT under the DIY Builders and Converters VAT Refund Scheme.  The amount at stake is £3,663.41.  The broad issue is whether some of the contractors involved charged the Appellant the VAT at the standard rate for some of the work and materials when they should have charged the reduced rate of 5%.
2.	 The Appellant represented himself and gave evidence on oath.  The Respondents (“HMRC”) were represented by Richard Shaw of HMRC.  He did not cross-examine the Appellant and led no evidence.  A bundle of productions was produced.  There was no dispute as to the authenticity of these documents or, where appropriate, their transmission and receipt.
Grounds of Appeal
3.	These are that the Appellant has paid the VAT and (is) entitled to have it refunded.  The VAT was charged at the correct rate.
Statutory Background
4.	Section 35 of the Value Added Tax Act 1994 provides inter alia that where a person carries out a residential conversion, the VAT chargeable on the supply of goods used are to be refunded.  Where a contractor carries out some or all of the work, the VAT on his services are, by virtue of section 35(1C) refundable.  It is accepted by HMRC that the works carried out by the Appellant were a residential conversion and that therefore, in principle, the Appellant is entitled to a refund of the VAT chargeable to him. 
5.	Section 29A of the 1994 Act provides that VAT on the supplies specified in Schedule 7A is to be charged at the reduced rate of 5%.  Schedule 7A contains a number of Groups.  The relevant one is Group 7 (Residential Renovations and Alterations).  Essentially this Group is concerned with the supply of specified services relating to the renovation or alteration of the fabric of qualifying residential premises or work within the immediate site of the premises in connection with the provision of water, power, heat or access, drainage, security or waste disposal (see Group 7 Item 1 and 2 and Note 5).  A single household dwelling falls within the definition of qualifying residential premises (see Note 2(1)).  There are other conditions but these are fulfilled and need not be considered.
6.	In particular, Note 11 to Group 6 of Schedule 7A provides as follows:-
(1) In the case of a conversion of a building, “supply of qualifying services” means a supply of services that consists in-

	(a) the carrying out of works to the fabric of the building, or
	(b) the carrying out of works within the immediate site of the building that are in connection with-
	(i) the means of providing water, power, heat or access to the building,
	(ii) the means of providing drainage or security for the building, or
	(iii) the provision of means of waste disposal for the building.

(2) In the case of a conversion of part of a building, “supply of qualifying services” means a supply of services that consists in-

	(a)  the carrying out of works to the fabric of the part, or
	(b)  the carrying out of works to the fabric of the building, or within the immediate site of the building, that are in connection with-
	(i) the means of providing water, power, heat or access to the part,
	(ii) the means of providing drainage or security for the part, or
	(iii) the provision of means of waste disposal for the part.
	(3) In this paragraph-

(a)  references to the carrying out of works to the fabric of a building do not include the incorporation, or installation as fittings, in the building of any goods that are not building materials;
(b)  references to the carrying out of works to the fabric of a part of a building do not include the incorporation, or installation as fittings in he part of any goods that are not building materials.

7.	Note 12 provides as follows:-
12  In this group “building materials” has the meaning given by Notes (22) and (23) of Group 5 to Schedule 8 (zero-rating of construction and conversion of buildings).]
8.	Notes (22) and (23) of Group 5 to Schedule 8 of the 1994 Act provide as follows:-
(22)  “Building materials”, in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description, (or its site), but does not include-

(a)  finished or prefabricated furniture, other than furniture designed to be fitted in kitchens;
(b)  materials for the construction of fitted furniture, other than kitchen furniture;
(c)  electrical or gas appliances, unless the appliance is an appliance which is- 
	(i) designed to heat space or water (or both) or to provide ventilation, air cooling, air purification, or dust extraction; or
	(ii) intended for use in a building designed as a number of dwellings and is a door-entry system, a waste disposal unit or a machine for compacting waste; or
	(iii) a burglar alarm, a fire alarm, or fire safety equipment or designed solely for the purpose of enabling aid to be summoned in an emergency; or
	(iv) a lift or hoist
(d)  carpets or carpeting material.

(23)  For the purposes of Note (22) above the incorporation of goods in a building includes their installation as fittings.

Facts
9.	The Appellant resides at Tartraven Cottage, Bathgate, West Lothian.  He bought the cottage in 2001.  It was then derelict.  In May 2003, the Appellant obtained planning permission to carry out alterations and erect an extension to the cottage and to erect a timber garage. Prior to the carrying out and completion of these works, the cottage had been unoccupied for more than ten years.  Indeed it had been unoccupied since about 1987.
10.	The works were duly carried out and a statutory certificate of completion was issued by West Lothian Council on 3/4/08.  The Appellant took up occupation of the cottage.  The garage was intended to be and is occupied with the cottage.  On or about 27/5/08, the Appellant submitted a claim for refund of VAT of £17,538.89 under the Scheme.  He included a number of invoices to vouch his expenditure and the related VAT.  These were examined by HMRC and the sum of £13,875.48 refunded.  Of the invoices submitted to HMRC, only five need be considered in this appeal.
11.	The first is from Star Drilling, Stirling, dated 20/3/04 in the sum of £6,846.00 plus VAT, at the standard rate, of £1,198.05 i.e. a total of £8,044.05.  The work related to the provision of a private water supply to the cottage.  It involved drilling a well some 100m from the cottage, the installation of an electrical pump, and the laying of a pipe and cables.  VAT of £855.75 has not been refunded.  Some of this work was not carried out within the immediate site of the cottage premises.
12.	The second is from J W Builders, Broxburn, dated 9/12/04 in the sum of £8,998.52 plus VAT, at the standard rate, of £1,574.74 i.e. a total of £10,573.26.  This work related to part of the construction of the garage, drainage work relating to the septic tank, and the concrete driveway entrance.  VAT of £1,124.81 has not been refunded.
13.	The third is from Macdonald Roofing Contracts Ltd, Armadale, West Lothian, dated 26/5/05 in the sum of £5,202.86 plus VAT at the standard rate of £910.50 i.e. a total of £6,113.36.  This work related to the supply and installation of roofing felt and slates for the garage, and to the supply of two chimney pots.  The Appellant himself installed the rafters and sarking.  VAT of £650.35 has not been refunded.
14.	The fourth is from Humbie Fencing, Kirknewton, Midlothian, dated 9/9/07, in the sum of £2,470 plus VAT at the standard rate of £432.25 i.e. a total of £2,902.25.  The work was the erection of stockproof fencing around the boundary of the property (approximately a square with a perimeter of about 160m) and the installation of field gates.  VAT of £308.75 has not been refunded.
15.	The fifth is from Tartraven Gardens, Glasgow, dated 14/11/07, in the sum of £5,790, plus VAT at the standard rate of £1,013.25, i.e. a total of £6,803.25.  The relative quotations make it clear that the invoice relates to the construction of a paved path, a patio, and a small drying area.  Of these sums, £1,290 plus VAT at the standard rate is attributable to the drying area.  £2,000 plus VAT at the standard rate may reasonably be attributed to the patio.  VAT of £723.75 has not been refunded.  Photographs show that sandstone paving has been laid linking various parts of the property.  Beside the paving, stone chips have been spread.  The photographs also show a more extensive paved area which appears to be the patio and drying area.  
16.	By letter to the Appellant dated 3/7/08, HMRC confirmed that £13,875.48 would be refunded to him.  The Appellant had claimed at total of £17,538.89.  The difference is £3,663.41.  By reference to a schedule, the letter explains that certain goods and services ought to have been charged at the reduced rate of 5% instead of the standard rate of 17.5%.  HMRC said that the Appellant’s suppliers had charged too much VAT on some items and HMRC were not empowered to refund VAT calculated by reference to the wrong rate.
17.	The Appellant thereafter appealed to this Tribunal.  In the meantime HMRC undertook a review of their decision contained in the letter dated 3/7/08.  The statutory appeal to this tribunal appears to have overtaken that review.
Discussion
18.	We found the Appellant to be generally reliable and credible.  His argument, insofar as we understood it, was that what occurred was a non-residential conversion of a dwelling.  In developing that argument, he relied on various HMRC Notices.  He also made several references to relevant residential accommodation which relates inter alia to what are commonly referred to as children’s homes.  He submitted that what we were concerned with was not a qualifying conversion.  The relevant statutory conditions were not met.
19.	However, in our view, the starting point must be section 35.  Unless the Appellant brings himself within that section he should not receive any refund at all.  It is correctly conceded that he falls within that section.  The real question is the applicability of the reduced rate provisions. There are two aspects to this.  The first relates to the cottage itself and its history; the second relates to the nature of the supplies in the course of the renovation and alteration works.
20.	The cottage was obviously designed as a single household dwelling (Schedule 7A Group7, Note 2(1)(a) & (4); Group 6, Note 4(1)).  It was unoccupied from about 1987 until the Appellant bought it in 2001 when it was derelict, he renovated it and occupied it.  The cottage had not been lived in for more than three years before the works began (Group 7 Note 3(2)).  The provisions apply to the garage (Note 3A).  Planning permission was obtained (Note 4).  The provisions relating to relevant residential purposes (Note 4A) are of no moment for present purposes as they are concerned with children’s homes and the like.
21.	As for the supplies, it is necessary to consider what items within the invoices fall within or outwith Item 1 as read with Items 5 and 6 of Schedule 7A. In relation to each of the five invoices HMRC have simply refused to refund the difference between the VAT calculated at the standard rate and VAT calculated at the reduced rate of 5%.
22.	The first invoice relates to the means of providing water and prima facie falls within Schedule 7A.  The second invoice relates to the means of providing access and drainage and again prima facie falls within Schedule 7A.
23.	The third invoice constitutes work to the fabric of the premises and prima facie falls within Schedule 7A.  A question arose about chimney pots but we consider that these items are goods ordinarily incorporated by builders in a building such as the cottage.  The fourth invoice relates to a boundary fence and gates.  This was said to be in connection with the provision of security for the premises.  This type of fencing and gates are intended to mark the boundary and to discourage stock and wild animals.  The fence will not make the cottage more secure.  There is, moreover, no mention of a lock or padlock arrangement being fitted to any of the gates.  We therefore consider that the sum of £308.75 ought to have been refunded.  That amount of VAT was properly chargeable and refundable.
24.	The last invoice relates to the path, the patio and the drying area.  Neither the construction of the patio nor the drying area appears to be works in connection with the means of providing access to the premises.  Of their very nature, a patio and drying area are additions to the cartilage of premises.  The purpose of a patio is relaxation.  It would not in common parlance be described as a means of providing access.  Similarly a drying area has a purpose entirely unrelated to the means of providing access to the premises.  Neither can truly be said to have been constructed in connection with the means of providing access to the premises.  We therefore consider that HMRC fell into error.  The VAT attributable to the drying area at the standard rate was £225.75.  We estimate that the VAT attributable to the patio at the standard rate was about £350.  The VAT at the reduced rate is £64.50 and £100 respectively.  The total difference between the two rates is (£225.75 + £350) – (£64.50 + £100), namely £411.25.  In our opinion, HMRC should have refunded £411.25 more than they did in relation to this invoice.  That amount of VAT was properly chargeable and refundable.
25.	The last point to be considered concerns the question whether the Appellant can recover the (remaining) excess VAT (that is to say the VAT charged at the standard rate but which should have been charged at the reduced rate) charged to him by his contractors.  The short answer is no because HMRC are only obliged to refund the VAT chargeable on the supplies.  Where the supply falls within section 29A VAT at the rate of 5% is chargeable.  VAT at the standard rate is not chargeable.  Accordingly, there is no obligation on HMRC to refund the difference, that is to say the extent to which the Appellant has been overcharged (in relation to VAT) by his contractors.  A similar conclusion was reached in Allen MAN/00/752 6/7/01 Chairman R Huggins and Aries LON/93/2611A 14/10/94 Chairman P Heim, in relation to supplies charged at the standard rate which should have been zero rated.  Here, that difference is not quite as large a sum as HMRC have asserted.
Disposal
26.	The appeal succeeds to a limited extent.  We hold that the additional sums of £308.75, and £411.25 i.e. a total of £720 ought to have been and should now be refunded to the Appellant.  We allow parties 28 days from the date of release of this Decision to make any application they think fit regarding expenses.

J GORDON REID, QC., F.C.I.ARB.,
TRIBUNAL JUDGE

RELEASE DATE:  11 MAY 2009