Hargreaves
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 March 2017 |
| Neutral Citation | [2017] UKFTT 213 (TC) |
| Date | 07 March 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Cannan, Philip Jolly
Mr Gayle appeared in person for the appellant
Mr David Ridley, Officer of HMRC, appeared for the respondents
Value added tax – DIY scheme for housebuilders and converters – Value Added Tax Act 1994 (VATA 1994), s. 35 – (1) Whether certain works lawful and materials incorporated into the site – Yes – (2) Whether VAT charged at incorrect rate can be refunded – No – Claimant's appeal allowed in part.
The First-tier Tribunal (FTT) allowed the appeal in part against HMRC's rejection of some of the VAT claimed by a converter. Some suppliers had charged VAT at the standard rate, but reduced-rating applied. HMRC repaid some the claim on the basis of amended invoices showing VAT at the reduced rate of 5%.
In September 2008, planning permission was granted to convert a barn into a single dwelling (‘the Barn’). The Appellant, Mr Hargreaves, subsequently purchased the Barn with the benefit of that planning permission. Then he carried out the necessary work on the barn. The planning permission included conditions concerning landscaping works to be carried out in accordance with a scheme and a programme to be approved by the council. Demolition of two nearby barns had left the Barn partially without a boundary feature, such as a fence or wall. The Appellant used in wire cages to form a boundary. The FTT accepted that he had conversed with the planning officers about his intention to build the caged wall and that they were agreeable. Following completion of the conversion work, they inspected the site and were satisfied that everything had been done in accordance with the planning consent.
Hargreaves appealed against HMRC's refusal of part of his claim for repayment of VAT under the DIY Housebuilders' Scheme (‘the Claim’) relating to work done by him on the Barn.
The FTT was satisfied that the Appellant was entitled to a refund of the VAT charged on the caged cobbles, because they had been incorporated:
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1) into the site, which for this purpose extended to the area under construction, including any associated landscaping of the grounds; and
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2) into the site under a landscaping scheme, which had been approved by the local authority (para. 27 of the decision).
It is a condition under VATA 1994, s. 35(1) that VAT is chargeable on the supply and it is ‘the amount of VAT so chargeable’ that is refundable. That means the amount of VAT properly chargeable on the supply, rather than the ‘VAT’ charged or purported to be charged.
The Appellant argued that HMRC had failed to warn claimants as to the implications of suppliers charging an incorrect rate of VAT and subsequently de-registering or becoming insolvent. However, the FTT held that it lacks any jurisdiction in this matter.
In any event, HMRC's guidance notes for making a claim state that, if a claimant has been wrongly charged ‘VAT’, then it cannot be reclaimed. HMRC need not go further and advise potential claimants that they may be unable to recover overcharged VAT, e.g. if the supplier de-registers or becomes insolvent.
This case illustrates that HMRC carefully check some repayment claims. If VAT was charged at 20%, but the correct rate was only 5%, then the claimant's remedy is against the supplier, rather than HMRC, even where HMRC appear to have been enriched. In practice, trying to enforce that remedy can be tricky.
[1] This is an appeal against a decision of HMRC refusing part of a claim for repayment of VAT made pursuant to the DIY Housebuilders Scheme (‘the Claim’). It relates to work done by the Appellant on premises which were part of South View Farm, Treales Lancashire. Mr Hargreaves claimed a VAT refund of £38,339. We understand that the sum in dispute in this appeal is approximately £5,460.
[2] Before making our findings of fact we set out the following summary of the statutory provisions which are relevant to the Claim and the issues which arise on this appeal.
[3] Section 35 Value Added Tax Act 1994 (‘VATA 1994’) makes provision in certain circumstances for a refund of VAT incurred by persons constructing a building designed as a dwelling. It is generally known as the DIY Housebuilders Scheme. The works carried out must be lawful and otherwise than in the course of a business. Where various conditions are satisfied the VAT chargeable on goods supplied and used for the purposes of the works shall be refunded on a claim being made to HMRC. Section 35(1) provides 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.
[4] Section 35(1A) provides that the section applies to certain types of works including ‘a residential conversion’, which is the conversion of a non-residential building into a building designed as a dwelling.
[5] Section 35(1B) provides as follows:
For the purposes of this section goods shall be treated as used for the purposes of works to which this section applies by the person carrying out the works in so far only as they are building materials which, in the course of the works, are incorporated in the building in question or its site.
[6] More generally, section 29A and Schedule 7A Group 6 VATA 1994 provide for a reduced rate of VAT of 5% on the supply of certain qualifying services and building materials in the course of a qualifying conversion. A qualifying conversion includes the conversion into a single dwelling of a building not previously used as a dwelling.
[7] We heard oral evidence from Mr Hargreaves. Based on that evidence and the documentary evidence before us we make the following findings of fact.
[8] In September 2008 planning permission was granted by Fylde Borough Council to convert a redundant barn at South View Farm, Treales near Preston into a single dwelling (‘the Barn’). The Appellant subsequently purchased the Barn with the benefit of that planning permission. He then set about carrying out the necessary works. The planning permission included conditions concerning landscaping works to be carried out in accordance with a scheme and programme to be approved by the council.
[9] The Barn was located off a public highway. A plan before us showed that it was bounded to the left by the private garden of a neighbour and to the right by a cobbled driveway owned by the Appellant beyond which there was the property of another neighbour. Further up the driveway there were two smaller barns which were demolished. Demolition of the two smaller barns left the Barn partially without any boundary feature such as a fence or wall. The Appellant used reclaimed cobbles in wire cages to form a boundary.
[10] Work on the Barn was completed in or about February 2016, and a completion certificate was issued on 9 February 2016. The Appellant submitted the Claim on 2 March 2016. Initially a repayment of £24,315 was made by HMRC followed by a subsequent repayment of £1,371. There were a number of invoices from suppliers where HMRC refused repayment of VAT because the supplier ought to have charged VAT at the reduced rate of 5% rather than the standard rate of 20%. In some cases the Appellant was able to obtain a credit from the supplier for the VAT incorrectly charged and HMRC repaid his claim on the basis of amended invoices showing VAT at the rate of 5%.
[11] The decision to refuse part of the Appellant's claim for a refund was upheld following a review dated 1 July 2016. The review did identify the possibility of HMRC repaying VAT at 5% on supplies from two suppliers, Aerial Angels and Poulton Bespoke Joinery Ltd on a concessionary basis. Following the review HMRC agreed to repay those parts of the claim.
[12] The amount in dispute in this appeal is approximately £5,460 comprising VAT charged by the following suppliers:
[13] There was one invoice from this supplier where the VAT reclaim was refused by HMRC. It was dated 23 March 2016 and related to supplies of electrical cables and components installed in a car port and other areas external to the Barn itself. The invoice was for £1,145 plus VAT at 5% amounting to £57.25.
[14] Initially there were issues as to whether this supply had been made within 3 months of completion of the conversion. In the event the reason this claim was refused was that HMRC contended that it did not form part of the eligible building work. HMRC conceded this aspect of the appeal prior to the hearing.
[15] There was one invoice from this supplier where the VAT reclaim was refused by HMRC. It was dated 22 March 2016 and described as an invoice. Under payment terms it had the narrative ‘*** Proforma Only ***’. Enviromesh supplied coated wire cages designed to hold stones or in this case cobbles. Payment due for the supply was £445 plus VAT at 20% amounting to £89. This was the only invoice issued and the Appellant paid it by telephone at the time he placed the order.
[16] The reason HMRC refused this claim was because the invoice was expressed to be a pro forma invoice and was therefore not a VAT invoice. Further, HMRC considered that it related to a landscaping scheme which had not been approved by the local authority.
[17] During the course of his evidence the Appellant produced correspondence between himself and the local planning authority dated 29 and 30 October 2011. That correspondence did not deal with the caged cobbles the Appellant intended to use in landscaping the site. However, the Appellant told us and we accept that he had conversations...
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