Capital Focus Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 June 2016 |
| Neutral Citation | [2016] UKFTT 440 (TC) |
| Date | 21 June 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge John Brooks, John Coles
Tim Brown, Counsel instructed by Dave Brown VAT Consultancy, appeared for the appellant
Anharul Qureshi of HM Revenue and Customs, appeared for the respondents
Value added tax – Purchase of commercial property, with intention to convert into residential dwelling house for sale or use as offices – Subsequently converted into multi-occupancy units (“dwellings”) – Whether such units were “self-contained living accommodation” – Yes – Value Added Tax Act 1994 (“VATA 1994”), Sch. 8, Grp. 5, Note (2) – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that multi-occupancy units (dwellings) were not zero-rated as “self-contained living accommodation”.
Capital Focus Ltd (the Company) purchased a commercial property (Tintern House), with the intention of converting it into residential accommodation. The Company registered for VAT as an intending trader. It reclaimed the input tax of £45,000 charged on the purchase of that property. HMRC allowed the claim, on the basis that it would be a supply of a non-residential building converted to residential use and zero-rated under VATA 1994, Sch. 8, Grp. 5, item 1(b).
Later HMRC were told that Tintern House was to be sold as a single residential house with multiple occupancy and some shared facilities. HMRC decided that, because it had been converted for multiple occupancy, the sale of Tintern House was not zero-rated, but exempt. Thus, any input tax incurred, which was directly attributable to it, was not recoverable.
It was agreed that, when it was acquired by the Company, Tintern House was a commercial, non-residential building and that it was subsequently converted for residential use. It was also agreed that the units created in the property could be dwellings, as they were places where people could live.
The FTT considered whether these dwellings were “self-contained living accommodation” as required for zero-rating (Sch. 8, Grp. 5, Note (2)).
It was not necessary for the FTT to reach a conclusion in relation to the individual units, as Tintern House consisted of self-contained accommodation, which contained the basic elements of living. The issue was whether a property with multiple occupancy can be a “dwelling” within the zero-rating provisions of item 1(b) (para. 18 of the decision).
Although Sch. 8 does not specifically refer to multiple occupancy dwellings, it does not specifically exclude them (para. 19 of the decision).
The legislation aims to zero-rate the creation of a new home where none existed before. Thus, applying a purposive construction to Sch. 8, the FTT held that a property, with multiple occupancy where people live, can be a dwelling within the zero-rating provisions (para. 20 of the decision). Thus, the company's appeal succeeded.
The word “dwelling” is not a “term of art”, but an ordinary or familiar word in the English language, which connotes a place where one lives and makes one's home. Thus, the FTT reached the expected decision.
[1] In August 2014 Capital Focus Limited (the “Company”) purchased a commercial property, Tintern House in Banbury, Oxfordshire, with the intention of converting it to residential accommodation. The Company registered for VAT as an intending trader with effect from 26 June 2014, the date of its incorporation. In its first VAT return, for the period ended 31 August 2014 (08/14), it reclaimed input tax of £45,000 charged on the supply of Tintern House by the vendor.
[2] Following receipt of the repayment claim an officer of HM Revenue and Customs (“HMRC”) visited the Company on 29 October 2014 to verify the 08/14 VAT return. After providing the Officer with a copy of the invoice from the vendor on 5 November 2014 and explaining, in emails dated 20 November and 1 December 2014 that it intended to develop Tintern House and sell it as a single residential unit HMRC allowed the £45,000 input tax claim on the basis that it would be supply of a non-residential building converted to residential use and therefore zero-rated under Item 1(b), Group 5 of Schedule 8 to the Value Added Tax Act 1994 (“VATA”).
[3] The Company submitted £nil returns for 09/14, 10/14 and 11/14 but claimed a repayment of £1,087.02 in its 12/14 VAT return. This prompted further enquiries by HMRC who were told that Tintern House was to be sold as a single residential house with multiple occupancy and some shared facilities.
[4] Mr Rupert Wallace, the Company's director whose oral evidence was not challenged, described how when it was sold with vacant possession Tintern House had been converted from a commercial building (with an estate agent on the ground floor and office space on two floors above) into a residential property with ten bedrooms. Although none of the rooms had wash basins four were en-suite and there were two bathrooms for the six remaining occupants. The property was centrally heated by a single boiler and heating and other utility costs were to be included in an all-inclusive sum paid by each occupant. There was a communal kitchen for the use of all residents although there was nothing to prevent them from cooking in their individual rooms. The property had a front and rear entrance/exit and each room could be locked with its own key.
[5] On 22 April 2015 HMRC wrote to the Company stating that, because it had been converted for multiple occupancy, the sale of...
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...not breach the planning conditions.[26] The Tribunal should construe the legislation in a purposive manner as in Capital Focus Ltd TAX[2016] TC 05193.[27] Note 2(c) must be applied in the light of the precise wording of the condition and the factual context in which it applies in the partic......