Frost v Revenue & Customs [2010] UKFTT 344 (TC) (23 July 2010)

DECISION

1. This is an appeal against the partial rejection of a Do-It-Yourself Builders and Converters Refund Scheme (“DIY Scheme”) claim of Value Added Tax (“VAT”) amounting to £6,418.11.

bAAaackground and facts

2. The Appellant is a non-registered person who converted a barn, classed as a non-residential conversion, into a dwelling for the DIY scheme purposes, at Waltham Barn, Old London Road, Coldwaltham, West Sussex, RH20 1LF.

3. The Appellant purchased the barn in January 2002. The Appellant applied for registration to the DIY Scheme on 12 June 2002 and was supplied with Public Notice 719 on 14 June 2002. Unfortunately the notice and pack he was supplied with were out of date as these documents had been amended in May 2002. The notice he was given did not refer to the reduced 5% rate or the three year capping rule both of which came into effect on 12 May 2001. The three year capping rule prevented any relevant supplier from being able to adjust their VAT returns after more than three years and refund him any overcharged VAT.

4. From 2002, when undertaking the residential conversion of the property at Waltham Barn the Appellant obtained services for, among other things, the supply of the fitting of the doors, windows and roof (“installation of building materials”). This installation of building materials was charged by the suppliers at 17.5% instead of the reduced rate of 5% actually chargeable under the DIY Scheme.

5. The Appellant submitted a claim for £25,811.36 on 27 July 2007 based on the information in the out of date notice.

6. In reply he received on letter dated 9 October 2007 informing him that a bank giro would follow in amount of £18,540.14 but that in respect of certain of the items for which a claim had been made there would not be a refund in the amount claimed due to the wrong rate of VAT being charged by the suppliers.

7. After further correspondence a further small refund was made by HMRC but in respect of VAT in the amount of £6,418.11 the claim was refused. This was because the Appellant had been charged the VAT at the wrong rate when the correct amount to be charged under the DIY Scheme at that time was 5%. By the time the claim was made by the Appellant it was more than three years since the Appellant had paid the suppliers and so the three year capping rule came into play and no reclaim by the suppliers to HMRC was possible.

Relevant Law

8. VAT Act 1994, Section 35, Refund of VAT to persons constructing certain buildings

(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

the Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.

(1A) The works to which this section applies are—

(a) the construction of a building designed as a dwelling or number of dwellings;

(b) the construction of a building for use solely for a relevant residential purpose or relevant charitable purpose; and

(1D) For the purposes of this section works constitute a residential conversion to the extent that they consist in the conversion of a non-residential building, or a non-residential part of a building, into—

(a) a building designed as a dwelling or a number of dwellings;

(b) a building intended for use solely for a relevant residential purpose; or

(c) anything which would fall within paragraph (a) or (b) above if different parts of a building were treated as separate buildings.

9. VAT Act 1994, Schedule 7A, Charge at Reduced Rate, Group 6 Residential Conversions

Item No.

(1) The supply, in the course of a qualifying conversion, of qualifying services related to the conversion.

(2) The supply of building materials if—

(a) the materials are supplied by a person who, in the course of a qualifying conversion, is supplying qualifying services related to the conversion, and

(b) those services include the incorporation of the materials in the building concerned or its immediate site.

Notes

2 Meaning of “qualifying conversion”

(1) A “qualifying conversion” means—

(a) a changed number of dwellings conversion (see paragraph 3);

3 Meaning of “changed number of dwellings conversion”

(1) A “changed number of dwellings conversion” is—

(a) a conversion of premises consisting of a building where the conditions specified in this paragraph are satisfied, or

11 Meaning of “supply of qualifying services”

(1) In the case of a conversion of a building, “supply of qualifying services” means a supply of services that consists in—

(a) the carrying out of works to the fabric of the building, or

(b) the carrying out of works within the immediate site of the building that are in connection with—

(i) the means of providing water, power, heat or access to the building,

(ii) the means of providing drainage or security for the building, or

(iii) the provision of means of waste disposal for the building

(2) In the case of a conversion of part of a building, “supply of qualifying services” means a supply of services that consists in—

(a) the carrying out of works to the fabric of the part, or

(b) the carrying out of works to the fabric of the building, or within the immediate site of the building, that are in connection with—

(i) the means of providing water, power, heat or access to the part,

(ii) the means of providing drainage or security for the part, or

(iii) the provision of means of waste disposal for the part.

(3) In this paragraph—

(a) references to the carrying out of works to the fabric of a building do not include the incorporation, or installation as fittings, in the building of any goods that are not building materials;

(b) references to the carrying out of works to the fabric of a part of a building do not include the incorporation, or installation as fittings, in the part of any goods that are not building materials.

Appellant’s submissions

10. The Appellant contended that he had relied on the out of date notice which he had received. Had he received the correct document he would have succeeded in his claim. At no time was he given any further notification of the change in the rules. If he had received such information he could have put his claim in earlier or made sure that he paid only the reduced rate of VAT to the relevant suppliers.

11. He contended that VAT should not be a burden on the creation of new buildings and he had done everything correctly in accordance with the information he had been sent by HMRC.

12. He did not accept that there was an error on his part. He was not able to monitor the situation constantly. If there was an error it was made in good faith based on erroneous information supplied by HMRC.

HMRC’s submissions

13. Mr Slater for HMRC emphasised that the old notice did not in fact state a VAT rate rather just referred to “the applicable rate”.

14. There was an express statement on the front of the notice that it was the 1996 version replacing the 1993 version and paragraph 4.7 of the notice stated that VAT which had been charged in error could not be claimed from Customs and Excise.

15. He contended that it was necessary to apply the dicta of Finlay J in Williams v Grundy's Trustees, KB 1933, 18 TC 271, “nothing is better settled than the principle that there is no estoppel as against the Crown”.

15. A blunder cannot prevent HMRC from collecting tax. The mistake was unfortunate but cannot prevent HMRC collecting the tax which is chargeable and due to be collected.

16. He referred to the case of Brookes (VTD 11752) (“Brookes”) in which the Tribunal stated at paragraph 23 that:

“Thus a taxpayer who has been assessed strictly in line with the charging provisions in the Act cannot (unless of course section 40 (6) comes to his aid which is not the case here) have that assessment set aside by a VAT Tribunal on the grounds that, for example, he had been misled to his detriment by an officer or a publication emanating from Customs and Excise”.

17. He cited the case of Christopher John Allen (VTD 17342) (“Allen”). This was an appeal by Mr Christopher John Allen against a decision of Customs and Excise that a refund could not be claimed under the DIY Scheme in respect of VAT charged by two contractors. The Appeal was dismissed. It was stated by the Tribunal in paragraph 22 under the question as to whether the capping rule affected the Appellant’s claim that:

“It is well established that the only party to submit a refund claim is the person who actually accounted for the VAT to Customs and Excise. There is no mechanism that allows the recipient of a supply to submit refund claims. In this regard the tribunal follows the reasoning of the tribunal in the appeal of Aberdeen Estates Ltd (EDN/94/235) (unreported). As Miss Haynes said, on behalf of the Respondents at the tribunal, with which the tribunal agrees, there cannot be any liability on the Commissioners to make a refund to Mr Allen because he was not the person who accounted for the VAT in relation to the three invoices. There may well be a private law relationship between the two suppliers Mr Hooper and Mr Joynes, on the one hand and the Appellant on the other where a three year limit for claiming may not be applicable. However, the main point is that Mr Allen cannot stand in the shoes of the two suppliers in asking for a refund in respect of VAT erroneously paid on the three invoices.”

18. In Richard Cusdin (19739) (“Cusdin”) the appeal concerned a building conversion carried out to a property, in respect of which the Appellant claimed a refund of VAT from H M Customs and Excise under the DIY Scheme. The appeal was dismissed. The Tribunal stated in paragraph 39 of their decision that they:

“reject the submission of the Appellant that he should be refunded by HMRC the amount of VAT at 17.5 per cent in respect of expenditure covered by the Scheme. As tax was never due at that rate in the first place, and should not have been paid, and is properly refundable to the Appellant by his payees as indicated above, there is no call upon HMRC to make such a refund directly to him. The difference between the tax due at 5 per cent and tax supposedly due at 17.5 per cent is outside the scope of the Scheme, and it would be improper for a refund in respect thereof to be made to the Appellant by HMRC.”

19. In the case of PT Wood, (VTD 6992) (“Wood”) a builder had carried out work on a protected building which did not qualify as an 'approved alteration' and was therefore not eligible for zero-rating. However he did not charge VAT on the work and appealed against a subsequent assessment, contending that he had been told by a VAT officer that tax would not be chargeable. The Tribunal dismissed his appeal.

20. Mr Slater submitted that these cases were clear authorities supporting his submission that HMRC could only refund the correct amount of VAT chargeable. The principle of no estoppel against the Crown is important as it operates to override any slip-ups by HMRC.

21. Furthermore HMRC did not concede that they had misled the Appellant. The suppliers who charged the VAT should have been aware of the correct rate of VAT to be charged and the changes in the law which were well published and were notified to the building trade.

Findings

22. The Tribunal found that whilst it had every sympathy with the Appellant there clear and unambiguous precedents which demonstrated that HMRC could only refund the correct amount of VAT chargeable.

23. The principle of no estoppel against the Crown operated to override the mistake by HMRC.

24. It appeared that the Appellant had not checked for any changes in the law with either the suppliers or HMRC at any time before finally submitting his claim although there was an express description on the front of the notice that it was the 1996 version replacing the 1993 version and at paragraph 4.7 that VAT which had been charged in error could not be claimed from Customs and Excise.

25. The Tribunal considered the issue of legitimate expectation. Whether this point can be taken by this Tribunal or whether it should instead be raised at the High Court by way of judicial review is a matter which is currently somewhat uncertain. The Tribunal decided that in this case Brookes, Wood, Cusdin and Allen were clear authority for refusing the Appellant’s claim. In William Bourne Judge Brannan recalled the very high threshold an Appellant must reach if he is to rely on legitimate expectation.

26. In Vetplus Limited (VTD 19850) the Tribunal stated that:

“The jurisdiction of the Tribunal derives from statute and cannot be enlarged upon either at the volition of the Tribunal or by the consent of the parties. There is nothing in any legislation which gives the Tribunal jurisdiction to act as arbiters……. There is now a fully fledged official complaints procedure ……and the appropriate avenue to the Appellant would be to take his case to the Adjudicator.”

Decision

27. The appeal is hereby dismissed.

28. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

First-tier Tribunal (Tax)

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

S.M.G.RADFORD

TRIBUNAL JUDGE

RELEASE DATE: 23 July 2010

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Frost v Revenue & Customs [2010] UKFTT 344 (TC) (23 July 2010) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00626.html Cite as: [2010] UKFTT 344 (TC)