DEREGISTRATION-Builder converting existing residence in conservation area - conflicting advice from the Commissioners as to the liability for VAT - registration effected - Building work exempt – deregistration required - case dismissed
MANCHESTER TRIBUNAL CENTRE

	J A PALFRY AND J D RODZIAN	Appellant

	- And -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR D S PORTER  (Chairman)
						MR D WENN FRICS

Sitting in public in Birmingham on 15th December 2003

Mr S Willerton Chartered Surveyor for the Appellant 

Miss S Williams of Counsel for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	By a Notice of Appeal dated the 27th April 2003 Mr Palfrey and Mr Rodzian (“the Appellants”) appealed against the decision dated 20th November 2002 to deregister the Appellants for the purpose of VAT pursuant to paragraph 13 of Schedule 1 of the Value Added Tax Act 1994 (“ the Act”)
2.	Miss S Willams of Counsel appeared for the Respondents and produced a bundle of copy documents. Mr S Willerton appeared for the Appellant.
3.	The facts were not in dispute. The Appellants carry on business as property developers and builders from premises at The Mead, Hubberts Lane, Hessett, Bury St Edmunds, Suffolk
4.	When the Appellants applied to register for VAT on 16th February 1998 they described their business activity as the construction of a new residential building plus the constructions of extensions to existing buildings. After clarification that they were building a new dwellinghouse known as Newbury House they were registered for VAT and claimed zero-rating in relation to that development.
5.	In July 2001 they acquired for cash a property known as The Lodge. This was a detached Victorian House in a poor state of repair in a conservation area. A plan of the development was provided for the Tribunal on which were coloured the three phases. The pink colouring identified the three main load bearing external walls. The front and back external walls required substantial building work. Two bays windows were to be taken out of the front elevation and a porch was to be erected. In the event the porch was not build of bricks (as identified on the plan) but as a wooden cover to protect people standing at the front door.
6.	The single storey building on the side of the house was to be demolished and a two-storey building erected utilising the existing side external wall. The site was on a slope and it was therefore possible to construct a three-storey extension on the back of the building. The intended extensions were coloured green on the plan.
7.	The external walls for the dining area wee repaired and a damp proof course constructed. These walls were coloured yellow on the plan.
8.	The plan made no reference to the need to retain any of the main load bearing walls for the purposes of the development nor were they so identified in the planning permission. The alterations to the walls were carried out as the development progressed. Mr Willerton confirmed that permission to amend the plans relating to those structures was agreed with the Officers in the Planning Department without the need to submit a new planning application. Further, the whole of the inside had been gutted and the ceilings and walls re-constructed and the property re-wired
9.	The Tribunal was also assisted by the photographs of the dwelling house through the various stages of the building operation.
10.	Some of the sub-contractors on the site had suggested to the Appellants that the development should be zero-rated. At about that time Mr Scott, an officer from Customs and Excise attended at the site because it had come to his attention that the Appellants had not made any recent taxable supplies. In those circumstances there would appear to be no need for the Appellants to be registered for VAT.
11.	At the same time the Appellants contacted the National Contact Centre at Newcastle and explained the circumstances of the development. In their letter of 5th December 2002 addressed to Mr Scott (see page 10 in the bundle)they also referred to VAT Notice 708  (August 1997) section 6, which gave examples as to when zero rating could be applied to a development. The note of the telephone call with the Contact Centre on 6th November 2002 appears at page 17 in the Respondents bundle. The enquiry notes state; -
“ Caller been submitting nil returns to us he has now bought business property
that he is developing asked if he can claim VAT back on this advice yes.”
12.	We find as fact the matters set out in paragraphs 3 to 11 above.
13.	Item 1(a) of Group 5 to Schedule 8 of the Act allows zero-rating in respect of “ the first grant by a person-
a.	constructing a building-
(i)	designed as a dwelling or number of dwellings; or
(ii)	Intended for use solely for relevant residential or a relevant charitable purpose; or
b.	………………
Note 16 to Group 5 to Schedule 8 of the Act clarifies that “ 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 that the enlargement or extension creates an additional dwelling or dwellings ;or
(c)	…the construction of an annexe to an existing building
Note 18 to Group 5 to Schedule 8 of the Act provides that “ 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 façade or where a corner site, a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission.

Item 1 of group 6 to Schedule 8 of the Act allows zero-rating in relation to 
“ the first grant by a person substantially reconstructing a protected building, or a major interest in, or in a any part of, the building or its site”
Note 1(a) to Group 6 to Schedule 8 of the Act defines protected building as 
“a building which is designed to remain as or become a dwelling or number of dwellings…. or is intended for use solely for a relevant residential purpose or relevant charitable purpose after the reconstruction or alteration and which ,in either case, is:-
(a)	a listed building, within the meaning of:-
(i)	the Planning (Listed Buildings and Conservation Areas) Act 1990; or
(ii)	…or
(iii)	…”

Paragraph 13(3) of Schedule 1 of the Act provides that: -
	“Where the Commissioners are satisfied that on the day on which a registered person was registered he was not registrable, they may cancel his registration with effect from that day” 
Registrable means liable or entitled to be registered for the purposes of VAT.

Section 73(3) of the Act further provides that:-
An amount:-
(a)	which has been paid to any person as being due to him as a VAT credit, and
(b)	which, by reason of the cancellation of that person’s registration under paragraph 13(2) to (6) of Schedule 1….ought not to have been so paid, may be assessed under section (2) above notwithstanding that cancellation”
14.	Miss Williams submitted that the development by the Appellants did not fall into any of the exceptions provided by the legislation and the development was therefore exempt and the Appellants were not therefore entitled to be registered for VAYT purposes and the Respondents acted properly in requiring them to deregister
15.	The construction of a residential building does not include the conversion and reconstruction work carried out by the Appellants unless the existing building is demolished in its entirety or two walls are allowed to remain as a condition or requirement of the Planning Permission. Neither the Planning Permission nor the accompanying plans in relation to the development made such a requirement. Nor are the Appellants helped by the fact that the building is in a conservation area unless the development required listed building consent. No such consent was required because the building is not a listed building. 
16.	In all the circumstances the development carried out by the Appellants was exempt and registration for Vat purpose was not appropriate.
17.	Mr Willerton submitted that the decision of the Respondents to deregister the Appellants had not been given due or reasonable consideration. The Contact Centre was clearly unsure and had advised that VAT could be reclaimed. The Development was in a conservation area and two of the walls, although not demolished had been substantially upgraded. 
18.	There had also been unconscionable delay on the part of the Respondents. The Building work had taken place in 2001 and it had taken until to-day to get the matter to trial
19.	We have considered the facts in this appeal and confirm that the Respondents were correct in requiring the Appellants to deregister for VAT purposes.
20.	The legislation is clear, all be it a little convoluted. It is clear that the development carried out by the Appellants did not meet any of the criteria that would allow them to claim zero-rating.
21.	Whilst the Respondents apologised for their delay in dealing with the matter it is clear that the planning details were not made available to the Respondents until January of this year. Any further delays occurred as a result of bringing the case before this Tribunal some of which time is outside the control of either of the parties
22.	We therefore dismiss the appeal.
23.	The Commissioners made no application for costs and we award none.

D S PORTER
CHAIRMAN
RELEASED:
MAN/03/0330