Boxmoor Construction Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 February 2016 |
| Neutral Citation | [2016] UKUT 91 (TCC) |
| Date | 22 February 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Greg Sinfield, Judge Judith Powell
Charles Bradley, counsel, instructed by VAT Advisory Services Limited, appeared for the Appellant
Jennifer Thelen, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax – Zero rating – Value Added Tax Act 1994 (“VATA 1994”), Sch. 8, Grp. 5, item 2 and Notes 16 and 18 – Supplies in course of construction following demolition of building except for part of facade – Whether retention of facade a condition of planning consent or similar permission – Whether part of facade retained disregarded as de minimis – Whether works reconstruction, alteration, enlargement or extension to existing building.
The Upper Tribunal (UT) heard an appeal by the taxpayer against a decision of the First-tier Tribunal (FTT) upholding a ruling by HMRC that work carried out by the appellant did not amount to the construction of a dwelling. In the judgment of the UT, the FTT had correctly concluded that the retention of a small portion of the front facade of the demolished existing building prevented the work from being zero-rated under VATA 1994, Sch. 8, item 2. Appeal dismissed.
The dispute concerned the liability to VAT of building services supplied by Boxmoor Construction Ltd, the appellant, which, it contended, should be zero-rated under VATA 1994, Sch. 8, Grp. 5, item 2 as the supply of services in the course of construction of a building designed as a dwelling. HMRC had ruled that the services were not zero-rated because the house that had originally stood on the site had not been completely demolished to ground level. A small portion of the front facade, including part of a projecting bay, had been retained which, in HMRC's view, meant that the works were extensions and alterations to an existing building. The appellant contended that the original building had ceased to exist because it met the condition in VATA 1994, Sch. 8, Grp. 5, Note 18(b), namely that the retention of the projecting bay was a condition or requirement of statutory planning consent or similar permission.
The FTT had dismissed the company's appeal, finding that there was no evidence of any positive statement in either the planning application or the consent that the projecting bay should be retained and no basis on which to infer that the retention of part of the front facade was a condition of the planning consent. The FTT upheld HMRC's ruling that the appellant's supplies were standard-rated for VAT purposes.
In appealing the decision to the UT, the appellant raised three issues: firstly, whether the FTT was entitled to conclude that the retention of part of the front facade was not a condition or requirement of statutory planning consent or similar permission; secondly, if it was so entitled, whether the part of the original building retained should be disregarded as de minimis; and thirdly, whether, even if the original house had not ceased to be an existing building, the construction works were the conversion, reconstruction, alteration, enlargement or extension of the previous house.
The UT heard that the planning consent described the approved works as extensions and alterations. The plans made no reference to the retention of the facade. Documents produced by the appellant showed that what was retained of the original house formed an L-shaped section of the front facade and that everything had been completely demolished except for the brick work immediately under the ground floor bay window including a column of bricks at the corner. Following the demolition, the appellant constructed a new residential property on the site incorporating the projecting bay.
The first ground of appeal was that the FTT's conclusion that retention of the projecting bay was not a “condition or requirement of statutory planning consent or similar permission” was wrong in law. The UT disagreed, finding that the FTT was entitled to conclude, on the evidence available, that the planning consent in this case did not require the retention of the projecting bay, Further, there was no evidence that compelled the FTT to conclude that such a condition was imposed by any subsequent discussions with the planning authorities which could have amounted to a similar permission.
The second ground of appeal was that, on the proper construction of VATA 1994, Sch. 8, Grp. 5, Note 18(a), the FTT should have found that the retention of the projecting bay was de minimis and the original building should be regarded as having been completely demolished to ground level. In the opinion of the UT, there was nothing in the language of Note 18(a) to indicate that the de minimis principle was excluded. However, without attempting to decide what might be considered to be “de minimis” in the context of Note 18(a), the UT took the view that the projecting bay in the present case could not be de minimis, since the facade was clearly of real substance. The fact that what was left was enough to prevent the building being completely demolished from the point of view of the planning authority provided additional support for this view.
In its third ground of appeal, the appellant contended that the FTT should have asked whether, viewed in the round, the works comprised the conversion, reconstruction, alteration, enlargement or extension of the original house within Note 16. The appellant relied on a passage from the judgment in R & C Commrs v Astral Construction Ltd VAT[2015] BVC 505, in which the UT rejected submissions by HMRC that, because it had not been demolished completely to ground level, the building (a church) remained an existing building by virtue of Note 18 and the works carried out must be regarded as an enlargement or extension. The UT observed that its comment in Astral was simply that because what remained after demolition might be an existing building by virtue of Note 18, it did not follow that all work, no matter how extensive, done on the site must be regarded as an enlargement or extension. The UT agreed with the appellant that Note 18 was not necessarily determinative of the question of whether works amount to the construction of a building. However, the FTT had found that the works were not the construction of a new building but were the alteration and extension of the original house and accordingly were within Note 16. In the view of the UT, it was implicit in the decision of the FTT that it formed the view that the works were the alteration and extension of the original house within Note 16 and, therefore, not the construction of a building.
In the judgment of the UT, the FTT was entitled to conclude that the retention of the bay was not a condition or requirement of the planning consent or similar permission and thus the building work carried out by the appellant was not the construction of a dwelling for the purposes of VATA 1994, Sch. 8, Grp. 5, item 2. The small section of the front facade that was retained could not be regarded as de minimis and be disregarded for the purposes of Note 18. The appellant's supplies did not qualify for zero-rating. Appeal dismissed.
It is an absolute requirement for zero-rating that the retention of part of an existing building must be no more than a single facade or, where a corner site, a double facade and that the retention must be a condition or requirement of statutory planning consent or similar. It is interesting in this case that, although the planning authority had informed the architect that planning permission would be nullified if the building were to be completely demolished, the UT refused to infer that the planning consent contained a condition or requirement that the projecting bay must be retained. Since many VAT disputes turn on the wording of the planning permission it is important to ensure that the consent is both clear and complied with.
[1] The Appellant (“Boxmoor”) appealed to the First-tier Tribunal (“FTT”) against a decision of the Respondents (“HMRC”) that certain supplies by Boxmoor were not zero-rated supplies in the course of construction of a building designed as a dwelling within item 2 of Group 5 of Schedule 8 to the Value Added Tax Act 1994 (“VATA”) but were chargeable to VAT at the standard rate. HMRC had reached that conclusion because the house that had originally stood on the site had not been completely demolished to ground level. A small portion of the front façade, including part of a projecting bay, had been retained which, in HMRC's view, meant that the works were extensions and alterations to an existing building. Boxmoor contended that the original building had ceased to be an existing building because it met the condition in note 18(b) to Group 5 of Schedule 8, namely that the retention of the projecting bay was a condition or requirement of the planning consent or similar permission.
[2] In a decision released on 21 August 2014, [2014] TC 03951, (“the Decision”), the FTT (Judge Short) dismissed Boxmoor's appeal. The FTT decided that there was no evidence of any positive statement in the planning application or the consent that the projecting bay should be retained and no basis on which the FTT could deem or infer that the retention of the part of the front facade was a condition of the planning consent. Accordingly, the FTT concluded that, while in substance the works might have amounted to the construction of a new dwelling, the conditions in note 18 to Group 5 of Schedule 8 had not been complied with and, therefore, Boxmoor's supplies were standard rated for VAT purposes.
[3] Boxmoor now appeals, with permission of the Upper Tribunal, against the Decision. The appeal raises three issues which are described more fully below. In brief, the first issue is whether the FTT was entitled to conclude that the retention of part of the...
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