Revenue and Customs Commissioners v Burton
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 January 2016 |
| Neutral Citation | [2016] UKUT 20 (TCC) |
| Date | 21 January 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
The Honourable Mr Justice Barling
Christiaan Zwart instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Appellants
The Respondent did not appear and was not represented at the hearing, but sent to the Tribunal written submissions prepared by Andrew McDonald MAAT FCCA
Value added tax – DIY Builders' Scheme – Construction of dwelling – Whether designed as a dwelling for purposes of Value Added Tax Act 1994 (“VATA 1994”), s. 35(1A)(a) and Sch. 8, Grp. 5, note (2)(c) – Whether descriptions and other details of development contained in planning application and/or in planning consent prohibited “separate use” of dwelling for purposes of note (2)(c) leaving aside terms of occupancy condition in planning consent – No – Whether that condition amounted to such a prohibition – Yes – HMRC's appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ([2013] TC 02522) that the planning consent did not prohibit the separate use of a dwelling.
In 2003, Burton bought ten acres of land in Nottinghamshire with a lake. He dredged, improved and stocked the lake. In 2004, he opened it to anglers as a fishery park. In 2009, he obtained planning permission to construct a dwelling on the site (“the Building”). The Building comprised a house with four bedrooms, three bathrooms and three reception rooms. The permission restricted the occupation of the Building to a person solely or mainly employed or last employed in the fishery park, or a widow or widower of such a person, or any resident dependants. He claimed a refund of the VAT incurred on constructing the Building.
HMRC rejected his claim on the basis that it breached VATA 1994, Sch. 8, Grp. 5, note (2)(c), since Mr Burton could not use the property “separately” from another property.
The FTT upheld his claim. The fact that Burton ran a fishery business, rather than a construction business, did not avoid the exception in s. 35(1)(b). It was possible to run the fishery business without the building. The construction simply provided a home for Burton and his wife, and not in the course or furtherance of the fishery business. The FTT also decided that the condition in the planning permission, which limited the occupation of the building to present or past employees of the fishery business and their dependants, did not constitute a prohibition on the separate use or disposal of the building. Thus, note (2)(c) did not stop the building from constituting a dwelling.
HMRC appealed to the UT, in relation to the correct interpretation and application of note (2)(c) in the context of the planning consent (para. 27 and 28 of the decision).
HMRC proceeded on the assumption that the Building has been constructed in accordance with the planning consent.
In allowing HMRC's appeal, the UT followed the approach of the FTT in Swain TAX[2013] TC 02719 and disagreed the decision in Wendels TAX[2011] TC 00737 (para. 99 of the decision). Swain concerned the conversion of a barn into a dwelling as part of a holiday cottage development. The dwelling accommodated the manager or proprietor of the holiday cottage business, and condition 10 of the planning permission stated:
The occupation of [the dwelling] shall be limited to a manager or proprietor of the holiday accommodation being operated from [the other buildings on the site] and any residential dependants.
The crucial passage in the FTT's decision was as follows at para. 71:
The clear effect of Condition 10 is to prohibit anyone from occupying Barn D who is not “a manager or proprietor of the holiday accommodation business being operated from Barns A, B and C …, or any residential dependants”. To comply with Condition 10, either such a person must occupy Barn D, or it must be unoccupied. If it is unoccupied, it is not being used at all. If it is occupied, it must be occupied only by appropriately “qualified” persons. The lawful use of Barn D is therefore circumscribed by reference to a relationship between its occupier(s) and a business being operated out of neighbouring premises. In that situation, we cannot see how it could properly be argued that there is no prohibition on the separate use of Barn D imposed by Condition 10; it cannot lawfully be used except by an occupier who fulfils the requirements of Condition 10 and who must therefore own or manage the neighbouring holiday letting development (or be a residential dependant of such owner or manager). Any use “separate from” that neighbouring development is therefore, in our view, prohibited by Condition 10.
Thus, the Building was not “designed as a dwelling” for the purposes of s. 35(1A)(a) and note (2)(c), and its construction did not attract a refund under s. 35(1).
Mr Burton did not appear and was not represented at the UT hearing. However, HMRC did not seek an order for costs, in view of the desirability of guidance from the UT as to the interpretation of note (2)(c).
[1] By a decision released on 6 February 2013 the First-Tier Tribunal (“FTT”) allowed an appeal by Mr Richard Burton (“Mr Burton”) against a formal internal review determination by HMRC dated 17 February 2012, in which HMRC had upheld their decision of 13 October 2011 refusing a claim for refund of VAT under section 35 of the Value Added Tax Act 1994 (“the 1994 Act”) in the sum of £8,566.72, incurred by Mr Burton in connection with the construction of a building at Hall Lake Fishery, The Fairways, Mansfield Woodhouse, Nottingham (“the Building”).
[2] Section 35 of the 1994 Act provides in certain circumstances for a refund of VAT incurred “on the construction of a building designed as a dwelling”. By subsection 35(4), the notes to Group 5 of Schedule 8 to the 1994 Act “shall apply for construing this section”.
[3] Note (2)(c) to Group 5 (“Note 2(c)”) provides:
A building is designed as a dwelling … where in relation to each dwelling the following conditions are satisfied –
…
(c) the separate use or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; …
[4] A statutory planning consent was granted under section 78 of the Town and Country Planning Act 1990 (as amended) (“the 1990 Act”) in respect of land at Hall Lake Fishery. The planning consent contained a condition (“Condition 4”) that:
the occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fishery or a widow or widower of such a person, or any resident dependants.
[5] In allowing Mr Burton's appeal against HMRC's refusal of a VAT refund under section 35, the FTT held (amongst other findings) that the Building was “designed as a dwelling” within the meaning of section 35 and note 2(c), as its “separate use or disposal” was not “prohibited” by the planning consent.
[6] HMRC appeal to this Tribunal pursuant to permission granted by the FTT on 19 April 2013. The appeal concerns the correct interpretation and application of note 2(c) in the context of the planning consent.
[7] Mr Zwart appeared on behalf of HMRC. Mr Burton did not appear and was not represented at the hearing before me. However, the Tribunal has been provided with three sets of written submissions on his behalf dated 16, 19 and 23 November 2015 prepared by Andrew McDonald MAAT FCCA. I have taken all these into account.
[8] The background facts are largely uncontroversial. A brief summary of them is sufficient for present purposes.
[9] In 2003 Mr and Mrs Burton bought approximately ten acres of land in Mansfield Woodhouse, Nottinghamshire. The site, which was outside the local urban boundary, included a lake approximately one third of a mile long. Mr Burton dredged, improved and stocked the lake, and in 2004 opened it to anglers on a day permit basis as Park Hall Lake Fishery. At that time Mr and Mrs Burton lived about two miles from the site and there were no structures on it, apart from an equipment storage container at the entrance.
[10] On 15 May 2008 Mr Burton applied for outline planning consent to construct a dwelling on the site. Permission was refused on 7 August 2008. Mr Burton appealed to the Secretary of State for Communities and Local Government, and his appeal was upheld by the Secretary of State's inspector on 11 March 2009.
[11] The inspector's decision (“the Inspector's Decision”) contained the following:
[1] I allow the appeal, and grant planning permission for a new occupational dwelling with disabled accessible w/c facilities at Park Hall Lake Fishery, off The Fairways, Mansfield Woodhouse, Nottingham in accordance with the terms of the application, Ref 2008/0465/NT, dated 15th May 2008, and the plans submitted with it, subject to the following conditions:
…
(4) The occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fishery or a widow or widower of such a person, or any resident dependants.
(4) …
[4] The main issue is whether the scale and nature of the fishery business … creates a demonstrable need for the proposed development having regard to its countryside location.
…
[8] … a dwelling at or close to the site is necessary in order to carry out the daily tasks necessary to adequately care for the fish.
[9] … A permanent presence on the site would provide a significant deterrent to intruders, thus protecting the welfare of the fish and the business …
…
[11] The appellant has provided details of work associated with the business. … From this information I am satisfied that the functional need relates to a full time worker.
…
[16] … the combination of the improvements that an on-site presence would bring in terms of tending to the needs of the fish and the very significant benefits...
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