The recently decided case of The Commissioners for Her Majesty’s Revenue & Customs v Richard Burton will be of interest to some self-builders.
The case related to the ability of a self-build taxpayer, Mr Burton, to recover VAT incurred in the construction of a building designed as a dwelling. Mr Burton built a house next to a lake in Mansfield Woodhouse, Nottinghamshire. He had been managing the lake as Park Hall Lake Fisheries since 2004, opening it to anglers on a day permit basis.
Under section 35 of the VAT Act 1994, where a person carries out construction of a building designed as a dwelling otherwise than in the course of a business and VAT is chargeable on the supply of goods used for the purposes of carrying out the works, then the builder can claim a refund of the amount of VAT.
Under note 2(c) of Group Five Schedule 8 to the same Act, a building is designed as a dwelling provided that the separate use or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision.
Condition 4 of the planning consent that Mr Burton obtained to build the house contained a provision that: “The occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fisheries or a widow or widower of such person or any resident dependants.”
When he had completed the construction, Mr Burton had applied to HMRC for a refund of £8,566.72 that he had paid in VAT on the basis of s.35 of the Act but HMRC refused because the dwelling did not meet the condition in paragraph 2(c).
At the first tier tribunal of the Tax and Chancery Chamber, Mr Burton successfully challenged this and the tribunal held that there was a difference between a limitation on occupancy and a prohibition (‘prohibition’ being the word used in paragraph 2(c)). Therefore it held that the occupancy condition did not constitute a prohibition on a separate use or disposal of the building and found for Mr Burton.
HMRC appealed and Mr Justice Barling reversed the decision of the first tier tribunal and held that the condition was sufficiently mandatory and clear to amount to a prohibition. He also considered that it was clear that what was prohibited was use of the dwelling separately to the fishery at Park Hall. He pointed out that the reasons for the condition as stated in the inspector’s decision expressly said this and also referred to the planning consent as a whole which explained in detail how certain important requirements of the Park Hall fishery business were to be met through the occupation of the building. He also stated that the condition meant that each occupant of the dwelling must still have a specific link with the fishery at Park Hall.
The case is interesting as it now clearly gives a ruling on this specific point which was previously subject to conflicting decisions at the first tier tribunal level.