TC03622: BS Design & Management Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 May 2014 |
| Neutral Citation | [2014] UKFTT 496 (TC) |
| Date | 23 May 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 496 (TC)
Judge Nicholas Aleksander
Toby McLean appeared for the Appellant
Bill Brooke, an officer of HM Revenue and Customs, appeared for the Respondents
Value added tax - Zero rating - Original buildings substantially demolished - Front and side façades and party walls retained - Whether retention of façades a requirement of planning consent - Yes - Whether rear wall had been retained - No - Conditions for zero rating satisfied - Appeal allowed - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 8 group 5Sch. 8, Grp. 5.
The First-tier Tribunal (FTT) heard the taxpayer's appeal against HMRC's refusal to allow zero-rating for the construction of a dwelling in place of a partially demolished building. HMRC contended that the front and side façades of the original building had not been retained as a condition of planning permission and that the rear elevation had been only partially demolished. The FTT disagreed on both counts and allowed the appeal.
The appellant taxpayer was a building contractor, engaged to carry out the redevelopment of a derelict building in London. In February 2011, Southwark Council gave planning consent to the owner for the demolition of most of the late-Victorian property and for the construction of a building with a commercial unit at basement and ground floor levels and a single residential unit on the upper three floors. The taxpayer contended that the building works relating to, or necessary for, the residential element of the development were zero-rated. HMRC argued that the building works were standard-rated, except for the residential element, which qualified for the reduced VAT rate of five per cent. The FTT heard that the property was located at the end of a terrace on the corner of Southampton Way and Bonsor Street, Southwark. Although there was no express planning condition requiring retention of the front and side façades, it was clear on the face of the plans that the façades had to be retained. This was confirmed in an email from Southwark Council's planning department in which they stipulated that the planning permission granted did not allow for the demolition of the walls to the front and side elevations.
It was common ground that, under VATA 1994, schedule 8 group 5Sch. 8, Grp. 5, items 2 and 4, zero-rating applied to the supply in the course of construction of a building designed as a dwelling of construction services, and of building materials supplied and incorporated into the building. HMRC took the view that the works in question were not those of new construction but were works carried out to an existing building and were excluded from zero-rating by Note (18) to Grp. 5. This provides that a building only ceases to be an existing building when it is demolished completely to ground level or when the part remaining above ground level consists of no more than a single façade, or where a corner site a double façade, the retention of which is a condition or requirement of statutory planning consent or similar permission. In this case, the party wall and the façades facing onto Southampton Way and Bonsor Street had been retained. HMRC disputed, firstly, whether retention of the front and side façades was an express requirement of the planning consent and, secondly, whether all of the rear elevation had been demolished. The questions for the FTT, therefore, were, whether any part of the rear elevation had been retained and whether the retention of the front and side façades was a condition or requirement of statutory planning consent or similar permission.
In evidence, the taxpayer gave an extensive description of the building method used and how the front and side elevations were supported as the rest of the building was demolished. HMRC countered that photographic evidence showed the bricks in the rear wall remaining in place so that the wall must, at least to a substantial extent, have been retained. The tribunal sided with the taxpayer, finding that the rear wall had been completely demolished to ground level and that no part of it had been retained.
HMRC did not dispute that the implicit terms of the planning consent required the retention of the existing façades facing Southampton Way and Bonsor Street, but submitted that the effect of Note (18) was to ensure that the "construction of a building" included only those developments where the retention of a wall or walls was a specific condition of the permission granted, one imposed by the person granting the permission. They contended that the planning permission granted by Southwark Council merely consented to the applicant's desire to retain the façades, rather than required such retention. The FTT could find nothing in the statute which suggested that the motivation of the planning authority was remotely relevant to the application of Note (18). Nor was there a requirement that the retention of a façade must be set out as an explicit condition of the consent. The single issue to be determined was whether the retention of the façades was a requirement of the planning consent. In the judgment of the tribunal, the requirement to retain the front and side façades was a requirement of the planning consent.
The FTT concluded that the original building had been completely demolished to ground level, other than the party wall and the front and side façades. Since the demolition of party walls is ignored and as it was a condition or requirement of the statutory planning consent that the front and side façades be retained, the FTT found that the original building had ceased to be an existing building before the work commenced, pursuant to Note (18). Accordingly, the supplies made by the taxpayer were in the course of construction of a building designed as a dwelling and were zero-rated to the extent that they related to the dwelling.
HMRC again argued in this appeal that the effect of Note (18) is to ensure that the construction of a building includes only those developments where the retention of a wall or walls is a specific condition of the permission granted and that this needs to be explicit in the terms of that permission, so that generalities do not suffice. The FTT observed that this stance taken by HMRC had no merit and had been consistently overturned by the FTT.
[1]This appeal relates to the construction of a building at 149 Southampton Way, on the corner of Bonsor Street in the London Borough of Southwark. The issue before the Tribunal is whether services relating to the construction of the Building are zero rated, which turns on the application of schedule 8 group 5item (b) of note 18 to Group 5 of Schedule 8 to the VAT Act 1994.
[2]The Appellant ("BS") is a building contractor, which was engaged to undertake the works that are the subject of the appeal. BS was represented at the hearing by their client (the owner of the building), Mr Maclean. HMRC were represented by Mr Brooke.
[3]I heard evidence from Anna Mac, a director of BS. In addition a bundle of documentary evidence was produced. The bundle included extensive "before", "during" and "after" photographs of the construction, copies of the planning application, the planning consent (including the commentary and...
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J3 Building Solutions Ltd
...to the question, despite HMRC repeatedly doing so. We cite only one decision, that of Judge Aleksander in BS Design & Management Ltd TAX[2014] TC 03622 [26] HMRC contend that the planning consent granted by Southwark Council merely consents to the applicant's desire to retain the facades. T......