Morfee
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 August 2016 |
| Neutral Citation | [2016] UKFTT 601 (TC) |
| Date | 22 August 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge John Walters QC, Mr John Coles
The appellant appeared in person
Mrs Jane Ashworth, HM Revenue and Customs, appeared for the respondents
Value added tax – Listed buildings – Whether services were zero-rated on the basis that they were supplied in the course of an approved alteration of a protected building within Value Added Tax Act 1994 (“VATA 1994”), Sch. 8, Grp. 6, item 2 – Held they were – Appeal TC/2014/05172 allowed – Whether HMRC's strike-out application in appeal TC/2013/00369 under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(2)(a) succeeded, on the basis that there was no jurisdiction to hear an appeal against a letter which contained no appealable decision – Held the strike-out application succeeded – Appeal TC/2013/00369 dismissed – The appellant's application for a costs order against HMRC in appeal TC/2013/00369 on the grounds of alleged unreasonable conduct dismissed.
The Appellant's challenged HMRC as to whether building works were an “approved alteration” under VATA and therefore zero-rated. The tribunal ruled in favour of the appellant, looking at the whole project rather than parts thereof.
The substantive issue between the appellant, Mr Morfee, and the Respondents (HMRC) is whether or not certain works carried out to the roof of a listed outbuilding (sometimes referred to as a carriage house) in the curtilage of Mr Morfee's house were the subject of a supply in the course of an approved alteration of a protected building, which should have been zero-rated pursuant to VATA 1994, Sch. 8, Grp. 6, item 2.
The main issues were the roofing works the subject of a supply which should have been zero-rated under VATA 1994, Sch. 8, Grp. 6, item 2? Zero-rating under VATA 1994, Sch. 8, Grp. 6, item 2 (which was generally repealed by the Finance Act 2012 in relation to supplies made on or after 1 October 2015) was provided for in relation to: “The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.”
The main issue between Mr Morfee and HMRC under this head was whether or not the works to the roof of the carriage house come within the exception to the relevant definition of “approved alteration” covering “any works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs, or of maintenance work”. There was also an issue, if we were with HMRC that the works carried out constituted a service supplied to any extent in relation to works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs, or of maintenance work, as to whether or not they also constituted a service supplied in relation to an approved alteration of a building and, if so, whether an apportionment should be made pursuant to VATA 1994, Sch. 8, Grp. 6, Note (9).
Mr Morfee submitted that the roofing works carried out by the contractor were alterations and not works of repair or maintenance because they were carried out as part of the conversion of the outbuilding into living accommodation. He contended that every aspect of the building had been altered except the external walls. He especially contended that the Tribunal should particularly consider what the purpose of the works was – and that purpose was the provision of a roof to a new dwelling, which was designed in a different way to the old roof of the building. The old roof could not have served as a roof for living accommodation. It was a misuse of language to say that the works were works of repair or maintenance – they were the installation of a new, insulated, roof.
Mrs Ashworth for HMRC submitted that the roofing work undertaken by the contractor was not an alteration of the building concerned. It had not altered the building's character – before the works were carried out, the roof was slated and tiled with a roof light and after the works had been carried out it was still slated and tiled with a roof light, albeit the roof light was of a marginally different size. The shape of the roof eaves was unchanged. The works were works of repair or maintenance – the building had been in need of extensive repair before it could be converted into living accommodation. The alteration in the size of the roof light (the installation of the velux window) was incidental to the work of repair or maintenance. She submitted that “alteration” and “repair or maintenance” of a building are not mutually exclusive concepts. There can be an overlap, and where a piece of work both alters and repairs or maintains a building it is not an “approved alteration” for the purposes of the legislation and cannot be zero-rated.
The tribunal raised the following points: Was there an alteration to the construction of the building? What was happening to the building as a whole? The listed buildings consent covered both internal and external works to the carriage house. The internal works carried out included excavation and laying an insulated concrete pad with fibre screen underfloor heating and oak flooring on top. This was clearly a work of alteration on the authority of ACT Construction. The internal works also included the construction of a staircase and the installation of a new mezzanine floor for the sleeping accommodation – also clearly works of alteration. New windows were installed. Where they replaced old windows they might be regarded as repairs, where they did not replace old windows, they were alterations. The tribunal noted that the listed building consent made reference to “the windows hereby permitted [being] recessed in the wall to match the form of existing windows”. A built-in kitchen was installed. This was an alteration. The installation of a shower room with fittings and a stone tiled floor with underfloor heating was also an alteration. The lowering of the internal wall to accommodate the new mezzanine floor was an alteration and has been accepted to be such by HMRC. The installation of plumbing, including the laying of a foul water drain, and the installation of electricity were all alterations.
Apart from the replacement of existing windows, the installation of new guttering to match the old cast iron guttering was probably a repair. Assuming that the roofing work carried out by the contractor was a repair (it could hardly be a work of maintenance, since the old roof was replaced), nevertheless the whole project – what was happening to the building as a whole – was clearly in our view a work of alteration, and the roofing work was an integral part of the project, not a separate, subsidiary operation. The fabric of the carriage house was very substantially altered.
It therefore seemed to the tribunal, adopting the approach of Moses J in the Morrish case, where he cited the earlier case of Parochial Church Council (PCC) of St Luke, that whether the roofing work carried out by the contractor, looked at on its own, was an alteration or a repair, is irrelevant to our decision. It was clearly work carried out “in the course of an approved alteration of a protected building”. As the tribunal found that the roofing work was integral to the whole of the larger project, its tax treatment should follow the tax treatment of the larger project. The tribunal ruled that you have to look on the project as whole and not individual items and therefore they found for the appellant.
A secondary issue in relation to costs arose where it was argued by Mr Morfee that he should have full costs but to grant this, HMRC would have had to have acted “unreasonably in bringing, defending or conducting the proceedings”. In this case HMRC clearly had not acted in such a way.
This case added clarity with regard to the law around zero-rating of building works under “approved alteration” and how HMRC should assess such a project by looking at the overall nature of the work.
[1] The substantive issue between the Appellant, Mr Morfee, and the Respondents (“HMRC”) is whether or not certain works carried out to the roof of a listed outbuilding (sometimes referred to as a carriage house) in the curtilage of Mr Morfee's house were the subject of a supply in the course of an approved alteration of a protected building, which should have been zero-rated pursuant to item 2 of Group 6 of Schedule 8, Value Added Tax Act 1994 (“VATA”). However the litigation between Mr Morfee and HMRC in relation to this matter has taken an unusual course.
[2] Mr Morfee appealed to this Tribunal by a notice of appeal dated 3 January 2013. That notice stated that the decisions appealed against were dated 19 July 2012 and 11 December 2012. The letter from HMRC to Mr Morfee dated 19 July 2012, which is referred to in the notice of appeal, relates only to the supply of an underfloor heating kit to be installed in a listed building. The dispute between the parties relating to that supply has been resolved. The letter from HMRC to Mr Morfee dated 11 December 2012, also referred to in the notice of appeal, relates both to the supply of the underfloor heating kit and to the supply of services carried out by Ableson Roofing Ltd. (“Ableson”), being the works carried out to the roof of the outbuilding to which we referred in paragraph 1 above. The VAT liability relative to the roofing works had been raised by Mr Morfee with HMRC in a letter dated 16 October 2012.
[3] It was stated in HMRC's letter to Mr Morfee dated 11 December 2012 in relation to an earlier letter from Officer David Connelly (VAT Written Enquiries Officer) dated 2 July 2012 – which only dealt with the supply of the underfloor heating kit – that the letter dated 2 July 2012 did constitute a decision which could be appealed against to this Tribunal. This was a...
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