19735
	VALUE ADDED TAX – do-it-yourself builders’ scheme – relief refused – VATA 1994 s 35, Sch 8 Group 5, Notes (16), (18) – original building substantially demolished but small part of the external wall incorporated in new dwelling – whether retention of wall a requirement of planning consent – no – conditions for recovery of VAT not satisfied – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	MR J D & MRS L B HALLIWELL	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Colin Bishopp (Chairman)
						David Wenn

Sitting in public in Manchester on 4 August 2006

John Halliwell for the Appellant 

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	In this appeal Mr and Mrs J D Halliwell challenge the Respondents’ decision, set out in a letter to them of 15 August 2005, that they do not qualify for a refund of the VAT of £8,022.51 which Mr and Mrs Halliwell incurred in the construction of a house at Hawkshead, Cumbria. 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 commonly referred to as the do-it-yourself builders’ scheme. The Respondents say that Mr and Mrs Halliwell have not satisfied the requirements of the scheme, and that their claim for a refund must therefore be rejected.
2.	Before us, Mr Halliwell represented himself and his wife while the Respondents were represented by James Puzey of counsel. We heard no evidence but had an explanation of their respective positions from Mr Halliwell and Mr Puzey (from which it emerged that there was no significant dispute about the facts). We were also provided with various documents including, particularly, plans showing the nature of the work undertaken by Mr and Mrs Halliwell, and copies of the planning consents which they obtained.
3.	Mr and Mrs Halliwell owned a bungalow known as “Tannenbaum” at Hawkshead. It was, we deduce, in poor condition. They intended to rebuild part of the house and at the same time extend it. In September 2002 they obtained planning consent for what was described in the consent as “loft conversion and conservatory to existing bungalow”. The plans submitted with the application for consent show that some, quite extensive, parts of the existing external walls were to be demolished and replaced while other parts were to be retained. However, as work progressed it became apparent that the condition of the foundations was such that nearly all of the external walls would have to be demolished and a large proportion of the foundations replaced if the resulting building were to be sound. We were shown a copy of a report completed by the local authority’s building inspector in which he comments that the extent of the demolition which had been found to be necessary was so great that the work must now be regarded as a “new build”. Mr and Mrs Halliwell were required to, and did, seek further planning consent which was granted in June 2003; the permitted work is described as “replacement dwelling”. Work was carried out in accordance with that consent and has, we understand, been completed. The plans submitted with the application, and which were approved, indicate much more extensive demolition of the existing walls than had been intimated in the first planning application, although some retention was still envisaged. We understand that, in fact, rather less of the existing structure was retained than even these plans suggested. On Mr Halliwell’s calculation, as little as 1.96 per cent of the original structure, above ground level, remains.
4.	The purpose of section 35 is to enable those who construct residential accommodation (and undertake certain other works, not relevant here) otherwise than in the course of business to recover the VAT they incur in paying for building work to be done, or in acquiring materials for incorporation in the construction. In effect, they are put in much the same position as commercial builders who are able to zero-rate their sales of finished dwellings, and to recover the VAT they have incurred in the course of the construction. There are some limitations on the extent to which VAT can be recovered, which affect both commercial and non-commercial builders, but they do not arise here. The section incorporates (and thus gives statutory effect to) the notes to Group 5 of Schedule 8 to the Act. Those notes impose a number of conditions which a commercial builder must satisfy if he is to zero-rate a building, and which “do-it-yourself” builders such as Mr and Mrs Halliwell must satisfy if they are to recover the VAT they have incurred. 
5.	We do not need to set out section 35 as its application to this case is uncontroversial. We must merely record that subsection (1A) restricts the relief to certain works; so far as relevant here, the restriction is to “the construction of a building designed as a dwelling”. By note (16) to Group 5 of Schedule 8, 
“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 the enlargement or extension creates an additional dwelling or dwellings.”
And by note (18):
“ 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.”
6.	In short, where one starts with an existing building, it is necessary first to demolish it to ground level if any work done on it is not to be considered to fall within parapraphs (a) or (b) of Note (16) (it is common ground that the work undertaken by Mr and Mrs Halliwell has not created an additional dwelling) with the consequence that the work is excluded from the statutory definition of the “construction of a building”. The only exceptions are those cases where one or, in the case of a corner plot, two external walls are retained as a condition of the planning consent. There is no de minimis exception; the phrase “demolished completely to ground level” has to be taken to mean what it says.
7.	Mr and Mrs Halliwell, as they agreed, have not demolished the existing building to ground level: a portion, even if it is a very small portion, of one of the existing external walls has been retained. (There was, it emerged, some doubt in Mr Halliwell’s mind whether all of the internal walls had been demolished but we do not need to determine that issue). Mr Halliwell argued that he and his wife had two planning consents, one granted by reference to plans which showed that various walls were to be retained and the other by reference to plans which showed complete, or almost complete, demolition of the walls, that they must be assumed to have complied with the consents in completing the construction and that the retention of the small part of the wall must be inferred to be a “condition or requirement” of the consents.
8.	We agree with the Respondents that rather more than inference is required if note 18(b) is to be satisfied: it must be clear that the planning consent requires, rather than merely permits, the retention of the wall. But here it is impossible even to infer a requirement. The first planning consent permitted the demolition of various parts of the walls, but it cannot be said to have required the retention of the remainder. The same is true of the later consent. We cannot accept that permission to demolish some walls – permission which may well have been exceeded – can be construed as a requirement to retain that part of the wall which was in fact retained – Mr and Mrs Halliwell merely chose to do so. As we indicated at the conclusion of the hearing, Mr and Mrs Halliwell’s unfortunate (as it now appears) decision to retain a small section of the existing wall means that they cannot bring themselves within the requirements of section 35 and the appeal must be dismissed.
9.	We add for completeness that it became apparent that Mr Halliwell had made some enquiries before work began which led him to believe that relief could be obtained and, when the work was complete, submitted a claim and was given to understand in a telephone conversation that he could expect a refund within a few days. He is, therefore, aggrieved that the Respondents have after all refused the relief. Whether or not there are grounds for complaint is not a matter for this tribunal; we can decide only whether the relief which Mr and Mrs Halliwell have claimed is properly due. As we indicated at the hearing, Mr and Mrs Halliwell should take up any complaint they may have which cannot be resolved between them and the Respondents with the Adjudicator.

COLIN BISHOPP
CHAIRMAN
Release Date: 23 August 2006
MAN/06/0029