20964

Value Added Tax – building works – 5% reduced rate on residential conversions – whether Respondents liable to refund balance where standard rate tax paid – appeal fails – VATA 1994 Section 29A, Schedule 7A, Group 6.

EDINBURGH TRIBUNAL CENTRE

	MISS CAROL LEGGE	Appellant

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  Mr Kenneth Mure, QC

Sitting at Aberdeen on 3 February 2009

for the Appellant	Appearance in person assisted by her husband, Mr Johnston

for the Respondents	Ms Julie Strachan, Shepherd + Wedderburn LLP

© CROWN COPYRIGHT 2009.

DECISION

This appeal relates to £6495.91 of VAT paid for building work and materials.  The facts were not disputed and may be summarised as follows.  The Appellant and her husband sought to convert a barn into two holiday lettings.  On a previous occasion they had renovated a derelict building and recovered VAT under Section 35 VATA.  They were advised by the Respondents’ officers that this relief would not be available in the present case as the holiday lets would represent “a business”:  Documents 1, 2.  However, they were told that the 5% reduced rate under Section 29A would be available:  Document 13.  Crucially they were not forewarned that the reduced rate had to be negotiated with the contractors before payment.  In the event they paid the standard rate to the seven or so contractors who carried out the work in the belief that they could reclaim the excess 12½% directly from the Respondents.

By letter dated 6 October 2006 (Document 18) the Respondents indicated that the VAT of £6495.91 was not repayable.  It is against that refusal the Appeal is pursued.

The terms of Section 35 fall to be considered.  That permits a refund of VAT in respect of materials for building work in certain circumstances but not where undertaken for the furtherance of a business.  Holiday lets would represent a business and so the relief is not available.

The operation of Section 29A may be distinguished.  That applies a 5% rate rather than the standard rate for residential conversions:  Schedule 7A Group 6.

The Appellant paid the standard rate of VAT, of course.  The point at issue is whether and, if so, how she can recover the excess 12½%.  Ms Strachan submitted that there is no mechanism in the statutory provisions whereby such a claim can be made against the Respondents.  This appears to be correct.  The reduced rate, Ms Strachan argued, may be secured by negotiation with the contractors.  In the present case that would require the Appellant to negotiate a repayment from each of the seven contractors involved.  They in turn could claim a credit in their periodic returns to the Respondents.

Ms Strachan referred me to Barcross Credit Ltd v C&E [1982] VATTR 220 at 224 as supporting the proposition that the Respondents should not be expected to act as tax advisors.  Further, she argued that this Tribunal has no jurisdiction to grant a repayment in such circumstances even although the Respondents may have been enriched:  see C&E v National Westminster Bank [2003] STC 1072 and Allen v C&E (Manchester, No 17342).  In the present case according to Ms Strachan the advice given was in a sense correct but it was incomplete as the Respondents had not emphasised the need to negotiate the 5% VAT rate directly with the builders.  But even in cases of incorrect advice there was no remedy against the tax authorities by way of Personal Bar:  see Milne & Mackintosh t/a Jack & Jill (Edinburgh, No 1063).

I fear that the Respondents’ argument is correct and that the Appellant has no direct recourse against them for the excess tax paid.  The appropriate rate is a matter for negotiation with the contractor.  At this stage pursuing partial repayments from the various contractors bristles with difficulties.  For practical purposes these are probably insuperable.  It is unfortunate in that the Respondents have been enriched by the amount of the excess tax paid.  Their advice was seriously inadequate in my view in as much as the taxpayer should have been forewarned of the somewhat exceptional need to confirm the reduced rate of tax with the contractors.  This Tribunal cannot, however, grant any equitable remedy in the circumstances.

Accordingly this appeal is refused.  Ms Strachan did not seek an award of costs in the event of success and no such award is made.

MR KENNETH MURE, QC

CHAIRMAN

RELEASE:  25 FEBRUARY 2009

EDN/08/152