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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Blacklock v Revenue & Customs [2007] UKVAT V20171 (22 May 2007) URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20171.html Cite as: [2007] UKVAT V20171

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20171

VAT — DIY builders scheme — conversion of outbuilding including garage serving main dwelling into new dwelling — whether conversion prevented from qualifying for scheme by note (9) Group 5 Sch 8 VATA 1994 — no — appeal allowed

MANCHESTER TRIBUNAL CENTRE

ROBERT DUNCAN BLACKLOCK Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack

Roger Freeston FRICS

Sitting in public in York on 15 March 2007

The Appellant appeared in person

Lisa Linklater, counsel, instructed by the General Counsel and Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. By section 35 of the Value Added Tax Act 1994 ("VATA"), inter alia, persons carrying out works of residential conversion, broadly speaking, are put into the same position as taxable persons in being entitled to recover input tax on supplies made to them. The issue in this appeal is whether the appellant, Mr Robert Duncan Blacklock, a do-it-yourself converter, can bring a claim for £7,877.25 he made to Her Majesty's Commissioners for Revenue and Customs ("HMRC") within section 35 of VATA.
2. HMRC maintain that the appeal cannot succeed because Mr Blacklock's conversion work did not result in the creation of an additional dwelling – an essential condition of section 35 by virtue of note (9) to Group 5 of Schedule 8 to VATA. Mr Blacklock, in contrast, maintains that that is to misinterpret note (9) and, as he provided a dwelling which previously did not exist and thus was an "additional dwelling", his conversion work falls within Section 35.
3. Mr Blacklock, who appeared in person, made his claim against the following agreed factual background. He resides at Castlegarth, Bullamoor, Northallerton, North Yorkshire ("Castlegarth"). Castlegarth was originally constructed as a domestic outbuilding serving a bungalow originally, and somewhat confusingly, earlier known as Castlegarth, but since renamed The Garths ("The Garths"). The Garths, a bungalow, was constructed in 1963 on a north-south axis. At its southerly end, and forming part of it, was a large garage.

In or about 1980, a previous owner of The Garths, Mr Johnson, obtained planning permission from Hambleton District Council ("the Council"), to construct an outbuilding which is now Castlegarth, some 10 metres to the south of the Garths. The permission provided for two stables and a tack room. It was amended in 1981 to provide for three stables, a tack room, a food preparation room, a domestic double garage and first floor office accommodation. On the basis of the amended permission, Mr Johnson attempted to construct a house for his daughter. The Council took enforcement action to prevent him doing so and what is now Castlegarth was constructed, which, whilst having the external appearance of a dwelling, in fact consisted of the accommodation for which the amended planning permission provided. By way of confirmation of the use made of Castlegarth, by email of 19 July 2006, an officer of the Council informed HMRC that, "Although it has always had a domestic appearance, and this has been a concern to the Council, it is not my understanding that it was ever occupied as such. I believe the building was used primarily for ancillary domestic purposes, in association with [The Garths]". The separate building extended to 170 square metres, and the garage formed about 15 per cent of that area.

4. At about the time what is now Castlegarth was constructed, the original garage forming part of and serving The Garths was absorbed into the bungalow itself for use as a kitchen / diner. From then the double garage in Castlegarth served as the garage for The Garths. (In his presentation to us, Mr Blacklock claimed, and we accept, that due to the width of the doors to the new garage and their angle to the drive, he and his wife never used the garage to house their cars).
5. On 2 February 1998 the Council granted planning permission to alter and extend Castlegarth (described in the permission as an "existing domestic outbuilding") to form a dwelling. Mr Blacklock purchased the property shortly afterwards and proceeded to carry out and complete the conversion works authorised, producing as evidence of completion a Certificate of Completion issued by the Council.
6. It is common ground that one dwelling results from the conversion works consisting of self-contained living accommodation; that there is no provision for direct internal access from that dwelling to any other dwelling or part of a dwelling; and that the separate use or disposal of that dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision.
7. It was against that factual background that Mr Blacklock made his claim for input tax recovery, omitting from it the VAT paid on the work carried out in converting the garage, i.e. he restricted his claim to the conversion work on that part of the building statutorily defined as non-residential.
8. Turning then to the legislative provisions in point in the appeal, we start with section 35 of VATA. The relevant parts thereof provide as follows:

"Refund of VAT to persons constructing certain buildings:

(1) Where—

(a) a person carries out building 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

(c) VAT is chargeable on the supply, acquisition or importance of any goods used by him for the purposes of the works,

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) …

(b) …

(c) a residential conversion

(1C) Where—

(a) a person ('the relevant person') carries out a residential conversion by arranging any of the work of the conversion to be done by another ('a contractor')

(b) the relevant person's carrying out of the conversion is lawful and otherwise than in course or furtherance of any business

(c) the contractor is not acting as an architect, surveyor or consultant or in a supervisory capacity, and

(d) VAT is chargeable on services consisting in the work done by the contractor

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

(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 number of dwellings;

…

(4) The Notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group."

9. Section 30 of VATA makes provision for Schedule 8 thereto. So far as relevant, Group 5 of that Schedule deals with 'Construction of Buildings etc.' in the following terms:

"NOTES

(2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied—

(a) the dwelling consists of self-contained living accommodation;

(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;

(c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and

(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

(3) The … conversion of a non-residential building to, a building designed as a dwelling … includes the … conversion of a non-residential building to, a garage provided that —

(a) the dwelling and the garage are … converted at the same time; and

(b) the garage is intended to be occupied with the dwelling …

(7) For the purposes of item 1(b), and for the purposes of these Notes so far as having effect for the purposes of item 1(b), a building or part of a building is "non-residential" if—

(a) it is neither designed, nor adapted, for use—

(i) as a dwelling or number of dwellings, or

(ii) for a relevant residential purpose; or

(8) References to a non-residential building or a non-residential part of a building do not include a reference to a garage occupied together with a dwelling.

(9) The conversion, … of a non-residential part of a building which already contains a residential part is not included within items 1(b) or 3 unless the result of that conversion is to create an additional dwelling or dwellings."

(Item 3 relates to supplies made to housing associations, and plays no part in the appeal).

10. Miss Linklater, counsel for HMRC, made her submissions in two parts; first, she claimed that the double garage forming part of Castlegarth was residential and excluded from being a non-residential part of the separate building by virtue of note (8) to Group 5. Furthermore, she added, the garage was not a "dwelling" whether one took the ordinary meaning of that word, or the sense in which it was used in VATA. In particular in note (8), "garage" and "dwelling" were distinct and mutually exclusive terms. Miss Linklater further added that it was common ground that the part of Castlegarth comprising the stables was a "non-residential part of a building".
11. In relation to the application of note (9) to Group 5, Miss Linklater submitted it applied to give a restricted meaning to the expression "the conversion of … a non-residential part of a building" within section 35 (1D) of VATA. As Chadwick LJ explained at paragraphs 27 and 28 of his judgment in Commissioners of Customs and Excise v Blom-Cooper [2003] STC 669:

"27. If, on a true analysis, the purpose and effect of note (9), in conjunction with note (7), is to give a restricted meaning to the expression 'converting [or conversion of] … a non-residential part of a building' for the purposes of Group 5, schedule 8, then the same restricted meaning must be given to that expression for the purposes of section 35(1D) VATA 1994. That is what section 35(4) plainly requires. The words of the section are 'The notes to Group 5 … shall apply for construing this section as they apply for construing that Group'. The effect of section 35(4) and notes (7) and (9), taken together is that, where (before conversion) the building already contains a residential part, the conversion of a non-residential part will not be treated as 'converting' [or conversion of] … a non-residential part of a building' for the purposes of section 35(1D) unless the result of that conversion is to create an additional dwelling or dwellings.

It follows that I think the judge was wrong to hold that note (9) to Group 5 had no application to the construction of section 35(1D); and wrong to hold that the express reference, in note (9), to items 1(b) and 3 of Group 5 'made it far more likely' that 'where there are other references to the results of conversion works the requirements of note 9 are not required'. He overlooked, as it seems to me, the fact that there are no items in Group 5 (other than items 1(b) and 3) to which notes (7) and (9) can have any application. He failed to appreciate that the effect of those notes is to give a restricted meaning to the expression 'converting [or conversion of] … a non-residential part of a building' for the purposes of Group 5; and that section 35(4) VATA 1994 requires that the same restricted meaning be given to that expression in the context of section 35(1D) VATA 1994".

12. Miss Linklater submitted that by virtue of note (9) a conversion of a non-residential part of a building which already contained a residential part was not within the scope of the DIY builders' scheme "unless the result of that conversion is to create an additional dwelling or dwellings". There must already be a dwelling within the separate building to satisfy note (9). As there was no such dwelling within the separate building, Mr Blacklock was not entitled to the refund he had claimed. In particular:

(a) note (9) employed the word "additional", presupposing that there was a dwelling there already. Otherwise the note would have provided for "a" dwelling or "the" dwelling (compare section 35(1D) with note (3) of Group 5).

(b) the specific exclusion of note (8) of a garage occupied "together with a dwelling" showed the legislature's intent to exclude conversions involving garages from the scope of the refund proposals generally.

(c) the restrictive treatment of claims involving garages was also underlined by the restrictions imposed on claims for their creation (see note (3) to Group 5).

13. Subsequent to the hearing, with the consent of the tribunal, both parties made written submissions on the effect of the recent decision of the President of these tribunals, His Honour Sir Stephen Oliver QC, in Sally Cottam v Commissioners for Revenue & Customs (2007) Decision 20036, where the material facts were identical to those of the instant case. (Cottam also concerned the conversion of an outbuilding containing a garage into a dwelling). Miss Linklater submitted that the Cottam tribunal, in holding that the appellant was entitled to DIY relief did not consider the meaning of "additional" in note (9) by reference to the case of Commissioners of Revenue & Customs v Jacobs [2005] STC 1518, and contended that we should not follow the Cottam decision.
14. For her submissions, Miss Linklater relied not only on the decision in the Jacobs case but also that of Commissioners of Customs and Excise v Blom-Cooper [2003] STC 669, the only two authoritative decisions on section 35 of VATA. Both were decisions of the Court of Appeal. In Blom-Cooper, the court had to decide whether Lady Blom-Cooper, in converting a public house containing a residential element into a single private residence, was entitled to DIY relief. The court held that since the number of dwellings before and after the conversion remained the same, Lady Blom-Cooper was not entitled to a refund of the VAT on the conversion works. In Jacobs, the appellant had acquired a property which had been used as a residential school wherein was a dwelling for the headmaster and had converted the property into a family home, including three self-contained flats. The court, in considering whether the additional dwellings must be created, in whole or in part, from the non-residential part, or simply in the property as a whole, held that note (9) was satisfied if there were more dwellings after the conversion than before. Thus, in both Blom-Cooper and Jacobs, the court was faced with a situation where the converted property contained a dwelling prior to the works being commenced. We shall consider Miss Linklater's submissions against that differing background.
15. Posing the "crucial question" in Jacobs of whether the additional dwelling or dwellings had to be created (either entirely or in part) in the non-residential part of the building or in the building as a whole, Ward LJ began with a consideration of section 35 "as a whole".
16. At paragraph 34 of his judgment he noted a number of requirements for DIY relief as emerging from section 35 (1D), those relevant to the instant case being the following:

(1) Works constitute a residential conversion to the extent only that they consist in the conversion of a non-residential part of a building: works consisting in the conversion of what is not non-residential are outside the scope of the subsection.

(2) The conversion qualifies when converting a non-residential part of the building: if part is non-residential the other part must be treated as residential, i.e. not non-residential.

(3) The conversion qualifies if it has the result of being a building designed as a dwelling.

(4) The subsection applies to the extent that a non-residential part of the building is converted into a building designed as a dwelling: "… on the proper construction of paragraph (a) it is enough if the non-residential part is converted into, that is to say changed in its character and made part of the new building which results from the conversion and it is in the building as a whole that one must look to find whether it – the building as a whole – has been designed as a dwelling …"

17. In our judgment, all those requirements are satisfied in the instant case.
18. Ward LJ then proceeded to deal with note (9), noting at paragraph 37 of his judgment that the note:

"is clearly aimed at the conversion taking place under section 35(1D)(a) because both are concerned with the conversion of a non-residential part into something which includes dwellings. As I have interpreted section 35(1D) unaffected by note (9), the works qualify as a residential conversion of part of a building if the building as a whole is designed as a dwelling or number of dwellings. Note (9) restricts that interpretation as has been held in the Blom-Cooper case. The converted building must have an additional dwelling and must not end up with the same number of dwellings as it had before the conversion".

19. Having in paragraph 38 rejected a claim by Mr Mantle, counsel for HMRC in Jacobs, that the additional dwelling required by note (9) had to be found in the non-residential part of the building as a whole, Ward LJ continued:

"39. In my view the weakness of Mr Mantle's argument is that he gives no weight or meaning to the word "additional" in Note (9). It is in my view the crucial word. The result of the conversion of the non-residential part of the building which already contains a residential part must be to create an additional dwelling or dwellings and the vital question is: additional to what? It must be additional to what is there already. One cannot have a dwelling additional to the non-residential part which is being converted because it would not be a non-residential part if it already contained a dwelling. A non-residential part and a part which already contains a dwelling are mutually exclusive concepts. The dwelling has to exist outside the area contained within the non-residential part. It must therefore be a dwelling to be found in the building as a whole."

In my judgment Note (9) has to be construed so that the result of the conversion is to create in the building an additional dwelling or dwellings. One counts the number of dwellings in the building before conversion and again after conversion. If there are more on the recount, Note (9) is satisfied. If that is so then Mr Jacobs is entitled to his refund and the Commissioners' appeal must be dismissed."

20. Miss Linklater invited us to read the penultimate sentence of paragraph 39 of the judgment as indicating that the dwelling having to exist outside the area contained in the non-residential part is an existing one. Thus she maintained that the reference to an "additional dwelling" in paragraph 40 requires the creation of at least a second dwelling for the conversion work to qualify for DIY relief. In contrast, Mr Blacklock maintained that Ward LJ was not indicating in paragraph 39 that there must be an existing dwelling and the conversion must add to its number, if he were to be entitled to DIY relief. He also submitted that the second and third sentences of paragraph 40 indicate that the result of the conversion work must be to create in the building an additional dwelling.
21. Having reminded ourselves that in both the Blom-Cooper and Jacobs cases the Court of Appeal was concerned with a situation where the part of the existing building included a building that was not non-residential, i.e. it was residential, so that the judgments therein must be read in that context, we then turn to consider the application of paragraphs 39 and 40 of the judgment in the Jacobs case to the instant one. In most cases where the tribunal is dealing with a conversion of a building, part of which is non-residential and part residential, the residential part will consist of a dwelling as defined in note (2) to Group 5. But since a garage occupied together with a dwelling is excluded from the definition "non-residential" by note (8), that will not always be so. We see no reason why, applying Ward LJ's observation in paragraph 39 of his judgment that the "additional dwelling" to which note (9) refers "must be additional to what there is already" there cannot be a situation where from there being no dwelling to there being one dwelling, note (9) is satisfied. That results in the number of dwellings in the building before conversion and after conversion being more on the recount as required by paragraph 40 of the judgment, thus also satisfying note (9).
22. By so interpreting paragraphs 39 and 40 of Ward LJs judgment, we find ourselves in full agreement with the decision of the President in the Sally Cottam case, notwithstanding that that tribunal was apparently not addressed on the possible effect of note (9) on the conversion works there in point.
23. It follows that we hold that Mr Blacklock is entitled to the DIY relief provided by section 35 of VATA. In allowing his appeal we consider that that result accords with the intention of "facilitating home ownership for the whole population" justifying zero-rating of works of conversion, that being a clearly defined social reason and for the benefit of the final consumer, see EC Commission v United Kingdom [1988] STC 456 and paragraph 41 of the judgment of Ward LJ in Jacobs.

DAVID DEMACK

CHAIRMAN
Release Date: 22 May 2007

MAN/06/0573