20036
DIY BUILDERS – Residential conversion – Building designed as a dwelling for additional family accommodation – Whether statutory consent granted in respect of that dwelling – Application for consent not required – Planning authority confirmed that consent is not required – Conditions satisfied – VATA 1994 s.25 and Sch 8 Gp 5 Note 2
DIY BUILDERS – Residential conversion – Conversion of non-residential premises into dwelling – Outbuilding contains garage – Whether premises excluded from being non-residential building because it is a garage – No – VATA 1994 s.35 and Sch 8 Gp 5 Note 8
LONDON TRIBUNAL CENTRE
SALLY COTTAM Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: SIR STEPHEN OLIVER QC (Chairman)
RACHEL ADAMS FCA
SHEILA EDMONDSON FCA
Sitting in public in London on 19 February 2007
L Cottam, father of Appellant, for the Appellant
Robert Robinson, office of the solicitor to the Commissioners for Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2007
DECISION
- Sally Cottam appeals against the decision of the Customs to reject a claim made by her under the DIY Builders and Converters Scheme ("the DIY Scheme") for a refund of VAT. The claim was made in respect of works to convert a building ("the outbuilding") into living accommodation. The living accommodation is now known as Greengage Cottage. The decision was contained in a letter dated 24 January 2005 and confirmed in the letter of reconsideration dated 2 February 2006.
- The first reason for the decision is this. Customs say that the conversion of the outbuilding was not conversion into a dwelling of either a non-residential building or a non-residential part of a building. This is because of the provision defining "a non-residential building or a non-residential part of a building" excludes a garage occupied together with a dwelling; and here the outbuilding was a garage.
- The second reason for the decision is that the DIY Scheme requires a conversion "into a building designed as a dwelling". The statutory provision states that a building is not designed as a dwelling unless, inter alia, "statutory planning consent has been granted in respect of that dwelling, and its construction or conversion has been carried out in accordance with that consent". In the circumstances statutory planning consent was not, say Customs, granted because it was not required.
- We heard evidence from Mr L Cottam who also presented the case for Sally Cottam, his daughter.
Background and chronology
- Sally Cottam is a private individual not registered for VAT. Mr L Cottam is the owner of a property known as Orchard Cottage. Orchard Cottage had its own attached garage which has recently been converted into residential accommodation; that conversion is no part of the present case.
- Until 1991 a barn had stood within the grounds of Orchard Cottage.
- The barn was demolished in 1991 and, with planning approval, the outbuilding was built on its site. The outbuilding was partly two-storey and partly one-storey. To judge from the pictures that we saw of the outbuilding, the one storey part covered a bit more of the ground than the two-storey part. The two-storey part had a room on both floors and a pitched roof. The one-storey area had a large doorway allowing access to motor vehicles; to judge from a photograph it was large enough to accommodate at least one car. It had a high pitched roof providing potential space for a further room.
- The outbuilding was used to store fruit and garden equipment and machinery. The one-storey area was used as a workshop, to repair cars and to store cars.
- In correspondence conducted at the time of the conversion to which the present appeal relates, Mr L Cottam writing for Sally Cottam referred to the project variously as "conversion of garages and store to residential dwelling", "garage conversion at Orchard Cottage" and "garage conversion to dwelling". In the certificate of completion of work under Building Regulations, the work is described as "Garage Conversion to Dwelling and, in architects' plans, "conversion of existing garages/store".
- We think that the term "garage" fairly described the lower part of the one-storey area of the outbuilding.
- Between 2002 and 2004 the outbuilding was converted into a house (Greengage Cottage) for use by Sally Cottam and her son. The shape and dimensions of Greengage Cottage were the same or virtually the same as those of the outbuilding.
- On or around 12 August 2002 title to the outbuilding passed from Mr L Cottam to Sally Cottam .
- Conversion work on the site began in the summer of 2002. The planning position, so far as we can ascertain it, is set out in paragraph 17 below. A Certificate of Completion of Work, issued in satisfaction of Building Regulations, was issued on 5 October 2004.
- On 2 November 2004 Sally Cottam submitted a claim for a "DIY" Builders VAT refund in the amount of £4,282.33. Sally Cottam states that the date of completion of the work was 31 August 2004, and the date of occupation of Greengage Cottage was stated to be 9 October 2004. Customs refused the claim for the two reasons set out in paragraphs 2-4 above.
The law
- The law in relation to claims under the DIY Scheme is contained in VAT Act 1994 section 35 which reads as follows:
"(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 –
… (c) a residential conversion
(1D) For the purposes of this section works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building, or a non-residential part of a building, into –
(a) a building designed as a dwelling or a number of dwellings;
…"
Schedule 8, Group 5, Note 2 states:
"A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied –
(a) the dwelling consists of self-contained accommodation;
(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent."
Schedule 8, Group 5, Note 7A states:
"For the purposes of item 3, and for the purposes of these notes so far as having effect for the purposes of item 3, a building or part of a building is "non-residential" if –
(a) it is neither designed, nor adapted, for use … as a dwelling or number of dwellings …"
Schedule 8, Group 5, Note 8 states:
"References to a non-residential building or a non-residential part of a building do not include a reference to a garage occupied together with a dwelling."
Was statutory planning consent granted in respect of Greengage Cottage?
- The question for is whether in relation to Greengage Cottage, the relevant "building designed as a dwelling", the condition in Schedule 8, Group 5, Note 2(d) is satisfied, i.e. "statutory planning consent has been granted in respect of that dwelling and its … conversion has been carried out in accordance with that consent".
- The case for the Customs, as we understand it, is that (to quote from their Skeleton Argument) "there was no planning consent" consequently the DIY Scheme does not apply. The matters on which Customs rely are set out in a letter to Sally Cottam dated 2 February 2006 which we now quote:
"Having read the correspondence and other documents provided, my understanding of the situation is that Mr Cottam applied for planning permission to carry out certain works, the nature of which is unclear from his letters dated 20 October 2000 to 20 March 2002.
During the course of this time he appears to have been informed that planning permission would not be required for alterations to his existing garage to provide additional living accommodation, and he requested confirmation of this in his letter dated 20 March 2002.
Building Regulations application No. … was deposited with Building Control Services on 4 April 2002 by Mr Cottam, to use the existing garage building as an annexe to the main house. He was advised by the Planning Department in their letter dated 15 May 2002 that, because the scheme involved minor additions to the existing building, a planning application was required. He then wrote to the planning department on 21 May 2002 and informed them that they had twice informed him that the plans did not show an extension and that he had twice been informed that the planning application would not be required. He asked to be advised which parts of the plans the planning department considered were an extension. A reply does not appear to have been received.
During July/August 2002 title to the garage was transferred to yourself [this letter is written to Sally Cottam], the building was renamed "Greengage Cottage" a mortgage was obtained and conversion work began towards the end of 2002.
Following a visit by the planning enforcement officer on 28 November 2002, the planning department wrote to Mr Cottam on 2 December 2002 and confirmed that, if the conversion work that was taking place was for additional family accommodation and complied with the details outlined in their letter dated 2 October 2001 (copy not provided), then planning permission would not be required. They also informed Mr Cottam that if it was his intention in the future to change its use in some way so that the property could be occupied by a non-family member by renting or selling the property, then planning permission would be required.
Mr Cottam then informed the planning department in his letter dated 11 December 2002 that the development on (sic) the garage was entirely for your use and that he had no plans for any change in the future.
It appears from these last two letters that the planning department had not been informed that title to the property had been transferred to yourself some months earlier. From the copy letters provided, they may not have been informed of this fact until Mr Cottam's letter dated 4 January 2005. I apologise if this supposition is incorrect, however, I do not appear to be in possession of copies of all correspondence between Mr Cottam and the planning department. …
In the event, the planning department have confirmed in their letter dated 22 December 2002 (addressed to Mr Cottam), that planning consent would be required if the annexe were to be occupied by any one other than a family member or person employed by the main household.
Conclusion
It is clear, from the copies of the correspondence received, that Greengage Cottage, at present, is regarded as an annexe/ancillary living accommodation to Orchard Cottage and is not a separate unit and planning permission would be required if the annexe were to be rented or sold to anyone other than a family member. This means that Greengage Cottage is not designed as a dwelling as defined by Note 2 above. …"
(Note 2 above refers to Note 2 to Group 5 of Schedule 8. That provision requires that the relevant building should consist of "self-contained living accommodation" and that the separate use, or disposal of the dwelling should not be prohibited by the terms of any statutory planning consent or similar provision.) We have already observed that the Customs' case on this issue has now firmed up on the single proposition that Greengage Cottage is not "designed as a dwelling" for purposes of Note 2 because "there was no planning consent".
- Why planning consent was not required for the change of use when conversion works started in 2002 was not explained to us; it is not adequately explained in any of the letters from either the planning authority or from the Customs. We know from the evidence that planning permission will have been obtained in 1991 for the construction of the outbuilding whose shape and dimensions were barely changed by the works of conversion in 2002. The letter of 2 December 2002 from the Council Planning Department, stating that it was their informal opinion that if the conversion work is for additional family accommodation then planning permission is not required, can be interpreted in either of two ways. First, the Planning Department were conveying to Mr Cottam the view of themselves, as planning authority, that the conversion works were covered by some existing general consent. Second, they were actually telling him that they, as planning authority, were giving him consent. (Our understanding of the position, which was not endorsed by Customs, is that every change of use to land requires planning consent. To this there are certain "general consents". It is possible, therefore, that the Planning Department were relying on the existence of a general consent when they wrote to Mr Cottam telling him that planning permission would not be required.)
- Whichever way the letter of 2 December 2002 from the Planning Department (and later letters from the Council) is construed, it shows the Council's consistent view that Sally Cottam had consent to carry out the conversion works.
- Reverting to the words of Note (2)(d) to Group 5 of Schedule 8, we note that there is no suggestion that the present conversion was carried out in an unauthorized manner. This leaves only the question of whether planning permission was granted in respect of Greengage Cottage. The words of Note (2)(d) do not, as we read them, require the works of conversion to have been the subject of a formal planning application resulting in the issue of a consent notice. Properly understood, those words mean that so long as, by virtue of the statutory planning regime, consent has been granted, the condition is satisfied. The nature of the consent is left to the circumstances of the conversion. Where, as here, the conversion is carried out in pursuance of the relevant Planning Act or a general consent and the Act and/or on the strength of an assurance by the planning authority that the statutory regime allows conversion without further formality, then we think that the condition in Note (2)(d) will have been satisfied.
Were the conversion works the conversion of a non-residential building not being a garage?
- The Act grants relief under the DIY Scheme for works comprised in a residential conversion to the extent that that conversion consists in the conversion of a non-residential building other than a garage occupied together with a dwelling. The exclusion for garages presents no problem where the building is a garage. But what is the position where the conversion extends to the whole building part only of which is a garage?
- The exercise in determining whether, for purposes of section 35(1D) the "works" constitute a residential conversion breaks down into three stages. The first stage is to identify the works of conversion and determine whether the end product is a dwelling. If it is, then move on to the second stage which is to determine what building (or part of a building) is being converted. Then, as the third stage, ask whether the building so ascertained is a garage occupied with a dwelling; if it is, it will not qualify as non-residential.
- Addressing the issue of the first stage, it is not in dispute that the end product of the present conversion, Greengage Cottage, is a single dwelling.
- Moving to the second stage, we think that the outbuilding in its entirety has been converted. There has been a single composite conversion; there is no suggestion from the evidence that either the one-storey part or the two-storey part has been separately converted.
- The concluding issue, therefore, is whether the outbuilding in its entirety is a garage occupied with a dwelling. For these purposes we recognize that the outbuilding has been referred to in several letters and application originating from Mr Cottam as a "garage"; and we accept that the one-storey part of the outbuilding can be and has been used to garage vehicles. However, much the greater area of the outbuilding is a general purpose store and has consistently been used as such. Taken in its entirety therefore the outbuilding cannot, we think, properly be described as a garage. Still less can it be described as a garage occupied with a building.
- It follows that the works consisted in the conversion of a non-residential building into a dwelling.
Conclusion
- In the light of our decisions on the two points separately dealt with above, we think that Sally Cottam's claim under the DIY Scheme is in principle well founded. The Customs wrongly rejected it. We therefore allow the appeal.
- Appeal allowed.
SIR STEPHEN OLIVER QC
CHAIRMAN
RELEASED: 8 March 2007
LON/2006/232
