[2010] UKFTT 634 (TC)

TC00873

Appeal number TC/2010/01287 

VALUE ADDED TAX – Refund of VAT to persons constructing certain buildings (DIY Scheme) – Section 35 VATA – whether VAT charged on certain services eligible for refund – held not because the scheme relates only to VAT chargeable on certain goods – also the claim related in part to an amount charged as VAT where VAT was not chargeable – whether VAT charged on roller blinds incorporated into the building was eligible for refund as ‘building materials’ – the applicable definition of ‘building materials’ in Note 22, Group 5, Schedule 8, VATA considered – held the roller blinds were ‘building materials’ within that definition – appeal allowed in part 

FIRST-TIER TRIBUNAL
TAX CHAMBER

	JOHN PRICE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC

						
Sitting in public in London on 27 September 2010

The Appellant in person

Mrs. Gloria Orimoloye, Advocate, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Mr. John Price (“the Appellant”) appeals against a decision on review by Mrs. G.M. Hodgson, Appeals Officer of the Respondents (“HMRC”), to refuse to refund a total amount of £774 to the Appellant pursuant to section 35 VAT Act 1994 (“VATA”) – Refund of VAT to persons constructing certain buildings, the Do It Yourself (DIY) Builders Scheme (“the DIY Scheme”).  
2.	The decision was communicated to the Appellant by Officer Hodgson in a letter dated 18 December 2009, and the detail of the refund refused is as follows:
•	£115.50 of VAT relates to invoices issued by Mullarkey Plastering Ltd. respectively on 23 December 2006 and 28 October 2008, in relation to (a) the ‘supply of labour to screed floor’ (£75.25), and (b) ‘plastering services’ (£40.25);
•	£15.64 of VAT relates to an invoice issued by Vaillant Ltd. on 16 January 2008 in relation to ‘commission boiler’;
•	£67.63 of VAT relates to invoices issued by Avante Garde, Contract & Domestic Soft Furnishing Manufacture & Installation Service, respectively on 20 December 2007 and 10 July 2008, in relation to (a) 4 roller blinds for a bathroom and 2 roller blinds in blackout for a bedroom, and (b) 1 roller blind for a landing and 2 further roller blinds in blackout for a bedroom.  Examination of these invoices shows that the calculation of £67.43 of VAT on these items is incorrect.  In both invoices the item prices are stated gross of VAT and the correct figure for the VAT on the disputed roller blinds is £61.47.
•	£575.23 of VAT relates to invoices issued by A.J. Grab Hire Ltd. and Camfaud Concrete Pumps Ltd. 
The invoices issued by A.J. Grab Hire Ltd. were issued respectively on 20 December 2005 (Invoice 2254242 - £234.50 VAT) and 1 May 2008 (Invoice 01956 - £217 VAT). Invoice no. 2254242 was in relation to ‘h/core [i.e. hardcore] away’ and ‘muck away’. Invoice no. 01956 was also in relation to a service of removing hardcore and muck from the site (VAT on the supply of gravel also on that invoice has been refunded to the Appellant).  
The invoices issued by Camfaud Concrete Pumps Ltd. were issued respectively on 19 December 2005 (Invoice 122312 - £60.73 VAT) and 25 April 2008 (Invoice 148572 - £63 VAT).  Both invoices were in relation to the hire of a mobile concrete pump.
3.	The Appellant bought a plot of land with a timber-framed bungalow on it in 2004.  He proposed to build a new house on the site in a phased ‘build/demolition’ programme.  Eventually HMRC accepted that the building works we he proposed to carry out, and did carry out, came within the meaning of the expression ‘construction of a building designed as a dwelling’ in section 35 VATA.
4.	The Appellant makes the point that strictly speaking that would have involved the demolition of the bungalow before the building work started – which did not take place – but HMRC’s recognition that he was, essentially, engaged in constructing a new dwelling shows that a pragmatic and realistic view should be taken of what amounts to compliance with the DIY Scheme.
5.	The Appellant made a claim under the DIY Scheme on 4 August 2009, originally in the sum of £17,392.99.  On 16 September 2009 HMRC wrote to him informing him that they were making a refund of £16,554.59.  The Appellant complained that HMRC’s decision not to refund the balance of £838.40 had been wrong and eventually, on Officer Hodgson’s review, a further amount of £64.40 was recognised as eligible for refund.  HMRC however maintained their refusal to refund £774, which is the subject of the appeal.
6.	The law relevant to this appeal is contained in section 35(1), (1A) and (1B)  and Note 22 to Group 5 (Construction of building, etc.), Schedule 8, VATA (which applies for the purposes of section 35 by virtue of section 35(4)), and is as follows:
“Section 35
(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.
             (1A) The works to which this section applies are-
(a)	the construction of a building designed as a dwelling …
(b)	…
(c)	…
(1B) For the purposes of this section goods shall be treated as used for the purposes of      works in so far only as they are building materials which, in the course of the works, are incorporated in the building in question or its site.
Note 22 to Group 5, Schedule 8
“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 [with some specified exceptions]
(d)	carpets or carpeting material.”	
7.	HMRC has issued a public notice, Notice 719, on ‘VAT Refunds for ‘do it yourself’ builders and convertors’, a copy of which was with my papers.  Notice 719 does not have legal effect itself and appears to have been issued for the guidance of ‘do it yourself’ builders and convertors and as a statement of HMRC’s practice.  This Tribunal’s function on an appeal, of course, is to apply the relevant VAT law, which is contained in the legal provisions of the VATA, as set out above.
8.	Paragraph 2.1 of Notice 719 is headed: “What does the Scheme do?” and contains the following sentence which featured prominently in the Appellant’s submissions:
“The Refund Scheme puts DIY builders and converters in a broadly similar position to a developer selling a zero-rated property, by refunding them the VAT on their main construction or conversion costs.”
9.	The Appellant submitted that he was as near to carrying out all the functions of a developer as any ‘do it yourself’ builder could be.  He stated that he had himself carried out more than 90% of the work of construction.  He had involved others in the construction work only where the work was very heavy or there was a legal requirement for the involvement of others. 
10.	Thus he contracted with A.J. Grab Hire Ltd. and Camfaud Concrete Pumps Ltd. to do the very heavy work involved in laying foundations, specifically, digging trenches, removal of spoil, filling and pumping of concrete.  This accounted for VAT of £575.23 for which a refund had been refused.  The Appellant said that any developer would have had to incur these costs and the VAT would have been recoverable as input tax against a zero-rated output.
11.	HMRC submitted in relation to this item that these were services which would never attract the zero-rate, because they were not services in the course of construction of a building.  Mrs. Orimoloye accepted that in this regard a developer, who could claim the VAT as input tax was in a more advantageous position than a user of the DIY Scheme.
12.	The Appellant also contracted with Vaillant Ltd. to commission the boiler.  This was, he said, a legal requirement and a cost he would not have incurred if it had not been a legal requirement, because his own skill and competence would have been equal to the work.  However, again, a developer who incurred this cost would have been able to get credit for the associated VAT as input tax.  This accounted for VAT of £15.64, for which a refund had been refused.
13.	HMRC’s submission on this item was that VAT was not refundable because it was on a supply of services, not goods.  If the service had been supplied in relation to the construction of the building it could (or should) have been zero-rated.  On this basis also, an amount charged as VAT, but not VAT which was chargeable, could not be refunded under the DIY Scheme. 
14.	 Similarly in relation to the supply of labour to screed a floor and the plastering services obtained from Mullarkey Plastering Ltd., which accounted for £115.50 of the disputed VAT, the Appellant said that VAT on these services was routinely claimed as credit by a developer constructing a house which would be the subject of a zero-rated supply.  Furthermore he obtained advice from the HMRC Contact Centre which led him to believe that VAT on building services (services which contribute to the construction of a building) is eligible for refund under the DIY Scheme.
15.	The note of the relevant advice with my papers records a telephone enquiry by the Appellant which was answered by Douglas Sharpe on behalf of HMRC on 12 April 2007. The note is as follows:
“Caller advised he is claiming VAT back using DIY scheme and has learnt that building services can be zero-rated for new buildings. What exactly qualifies as building services?
[Douglas Sharpe] spoke to [another officer], advised caller building services are services which contribute to the construction of the building.”
16.	In relation to the disputed VAT on the services obtained from Mullarkey Plastering Ltd., HMRC’s submission was that these services should have been zero-rated under item 2(a) of Group 5, Schedule 8, VATA as being services related to the construction of a building designed as a dwelling.  Because 17.5% purportedly VAT was charged but should not have been, it was not refundable under the DIY Scheme.
17.	The Appellant admitted in argument that he may have misunderstood the advice given by Douglas Sharpe.  He did not realise that he should have got the contractor to zero-rate the supply. 
18.	It is worth noting that Notice 719 at paragraph 9.1 under the heading ‘Will I be charged VAT on services?’ contains the following statements:
“If you are constructing a new building, your builder’s services should be zero-rated to you.
…
You should be careful to ensure that you are charged the correct amount of VAT, as you can only reclaim VAT that has been correctly charged. …”
19.	Finally, in relation to roller blinds, accounting for £67.63 of VAT refund claim (accurately £61.47), the Appellant submitted that because it was stated in the version of Notice 719 current at the time building materials are articles incorporated in the building, which includes items ‘fixed in such a way that [their] fixing or removal would … require the use of tools’, then the roller blinds should qualify as building materials in relation to the supply of which the VAT charged is eligible for refund under the DIY Scheme.
20.	HMRC rejected the claim in relation to the roller blinds because they considered that they were not ‘building materials’. They made reference to their publication VAT 431 NB ‘VAT refunds for DIY housebuilders claim form and notes for new houses’ in which it is stated that the category of goods for which a claim cannot be made includes blinds.    
21.	The Appellant objected that this publication was first issued at a date after the relevant supplies had been made.
22.	From the language of section 35(1),(1A) and (1B) VATA it is clear that VAT is eligible for refund under the DIY Scheme in the circumstances of this appeal only if it has been chargeable on a supply of goods used by the Appellant for the purposes of the construction of a building designed as a dwelling, which are building materials as defined by Note 22 to Group 5, Schedule 8, VATA which, in the course of the works, are incorporated in the building in question.  I have italicised the important qualifications.
23.	To be eligible for refund, VAT must have been chargeable in the first place.  I accept the submissions of HMRC to the effect that the amount charged as VAT by Mullarkey Plastering Ltd. (£115.50) in relation to the supply of labour to screed a floor and plastering services ought to have been zero-rated by Mullarkey Plastering Ltd.  Therefore that amount was not ‘VAT chargeable’ and cannot be refunded under the DIY Scheme for that reason.  There is an additional reason why it cannot be refunded and that is because it relates to supplies of services, not goods.  I therefore dismiss the appeal in respect of this item.
24.	I record, however, that it was agreed in argument that if Mullarkey Plastering Ltd. credited the Appellant with the amount charged as VAT and corrected their own VAT return accordingly within the applicable time limit, then HMRC would accept the correction.
25.	The requirement that VAT, to be eligible to be refunded under the DIY Scheme, must have been chargeable on a supply (or supplies) of goods – not services – is also fatal to the appeal in respect of the VAT charged (£15.64) in respect of the service of commissioning a boiler, by Vaillant Ltd., and the VAT charged (£575.23 in total) in respect of the services of removing hardcore and muck from site and the hire of a mobile concrete pump.  I therefore dismiss the appeal in respect of these items also.
26.	Finally, in relation to the supplies of roller blinds, the requirement that refundable VAT must be chargeable on a supply or supplies of goods used for the relevant purposes, which are building materials as defined by Note 22 to Group 5, Schedule 8, VATA which, in the course of the works, are incorporated in the building in question, is in issue. I accept that the roller blinds have been incorporated in the building in question in the course of the construction works – in argument Mrs. Orimoloye informed me that HMRC accept that VAT on curtain rails are eligible for refund on this basis.  The further question for me is whether the roller blinds are building materials within the relevant definition.  
27.	For these purposes I must analyse the definition of building materials in Note 22 to Group 5, Schedule 8, VATA.  The requirements as applied to this case are that they must be (a) goods, (b) of a description ordinarily incorporated by builders in a dwelling house, and (c) not within the specifically excluded items.
28.	 Clearly roller blinds are goods.  Equally clearly they are not within the specifically excluded items. The point for my decision is therefore whether they are ‘goods of a description ordinarily incorporated by builders in a dwelling house’.  I have already decided that they have been incorporated in the house.  The question therefore is whether roller blinds are ‘ordinarily incorporated by builders in a dwelling house’.
29.	The application of the definition of ‘building materials’ in Note 22 to Group 5, Schedule 8, VATA to the interpretation of the expression ‘building materials which, in the course of the works, are incorporated in the building in question or its site’ in section 35(1B) VATA, seems to me to make irrelevant any question of whether, on the ordinary meaning of language, roller blinds can be said to be ‘building materials’.
30.	The language of Note 22 to Group 5, Schedule 8, VATA, in particular the reference to ‘building materials’ as defined not including the specifically excluded items is, to my mind, a guide on how to interpret the definition.  It is logical to accept that ‘building materials’ within the general words of the definition (which I have to interpret) do include the specifically excluded items – otherwise they would not be required to be excluded.  Thus, for example, ‘finished or prefabricated furniture’ and ‘carpets or carpeting material’ can, it seems to me, be regarded as items which the framer of the definition would have considered to be ‘goods of a description ordinarily incorporated by builders in a building’ of some description, most obviously a dwelling house, else, why would he or she have used the statutory language to exclude them?  Further, the exception from the specifically excluded items of ‘furniture designed to be fitted in kitchens’ seems to me logically to lead to the conclusion that the framer of the definition regarded such furniture as ‘goods of a description ordinarily incorporated by builders in a building’.
31.	I conclude, although as a matter of judicial notice, because there was no evidence on the point, that roller blinds are as much ‘goods of a description ordinarily incorporated by builders in a [dwelling house]’ as finished or prefabricated furniture, furniture designed to be fitted in kitchens or carpets or carpeting material.  In short, there seems to me to be nothing ‘extraordinary’ about their incorporation into a dwelling house by builders.  HMRC’s specific exclusion of them in notice VAT 431NB does not in my view affect the legal position.
32.	For these reasons I allow the appeal in respect of the roller blinds. VAT of £61.47 is eligible to be reclaimed by the Appellant under the DIY Scheme.
33.	I make the general point that the DIY Scheme does not, as a matter of legal interpretation or, it seems from HMRC’s submissions at the appeal, as a matter of policy, put a ‘do it yourself builder’ into a precisely comparable VAT position to that of a developer building a house which will be supplied under a zero-rated supply, and the Appellant’s arguments based on the proposition that it does, or should be interpreted so that it does, cannot be accepted.
34.	In the result the appeal is allowed in part.  In relation to £61.47 of the amount claimed it is allowed.  In relation to the balance of £712.53 of the amount claimed it is dismissed. 
      Right to apply for permission to appeal
49.	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.

JOHN WALTERS QC
JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 8 December 2010

© CROWN COPYRIGHT 2010