Revenue and Customs Commissioners v Shields

VAT – DIY housebuilders scheme – Section 35 of Value Added Tax Act 1994 – Planning permission for equestrian facilities manager’s residence on sit4 of equestrian business – Condition restricting occupation to person solely employed by equestrian business at that site – Whether respondent entitled to refund of VAT incurred on construction of dwelling pursuant to section 35 of 1994 Act – Whether terms of planning permission prohibiting separate use or disposal of dwelling within meaning of note 2(c) to Group 5 of Schedule 8 to Act – Appeal allowed In 2006, the respondent applied for planning permission to construct an “equestrian facilities manager’s residence” on a site where he operated an equestrian business and a separate landscape supplies business. The local planning authority granted permission for the development in accordance with the application, subject to certain conditions, one of which restricted the occupation of the new dwelling to a person solely employed by the equestrian business at the site and any resident dependent. The reason given for that condition was that the site was in the green belt, where development was to be restricted, and that the application was allowed solely because of the respondent’s special circumstances. The respondent constructed the dwelling and moved into it with his wife. He then applied, under the DIY Builders Scheme in section 35 of the Value Added Tax Act 1994, for a refund of £6,189.56 in VAT incurred on goods used in the construction of the dwelling. The appellants refused that claim, taking the view that the dwelling did not qualify for a refund under the scheme since it was not “designed as a dwelling”, as defined by note 2(c) to Group 5 of Schedule 8 to the 1994 Act. In reaching that conclusion, they found that the terms of the planning permission prohibited the use of the dwelling separately from the equestrian business. The first-tier tribunal (FTT) allowed the respondent’s appeal against that decision. It held that the condition in the planning permission limited the occupation of the dwelling but did not amount to a prohibition on its separate use or disposal within the meaning of note 2(c): see [2013] UKFTT 424 (TC). The appellants appealed. Held: The appeal was allowed. The question under note 2(c) was whether the separate use or disposal of the dwelling was not prohibited by a term of any covenant, statutory planning consent or similar provision. A term prohibiting a particular activity or disposal generally would not fall foul of note 2(c); the term had to prohibit use or disposal separately from the use or disposal of other land. Whether a planning consent contained such a prohibition would depend not only on the conditions imposed by the planning authority but also on a consideration of any other relevant part of the consent that prohibited separate use or disposal. The effect of the term should be determined by construing the words of the planning permission, including any conditions and reasons, and applying those words to the facts of the particular case. In the instant case, the planning permission expressly stated that it was granted in accordance with the application and subject to the conditions. Although the description of the development as “equestrian facilities manager’s residence” restricted who could occupy the dwelling by reference to the equestrian business, it did not, in terms, prohibit the respondent from using the dwelling separately from land on which the equestrian business was sited. The respondent could move his equestrian facilities to stables elsewhere and continue to use the original site entirely for his landscape business. Provided that he continued to be the manager of the equestrian facilities, there would be no inconsistency with the development description. However, the condition in the planning permission, restricting occupation of the dwelling to a person solely employed by the equestrian business and any resident dependents, was a prohibition on the separate use of the dwelling so as to disqualify it from a refund of VAT under the DIY Builders Scheme. The effect of the occupancy condition was to prohibit use of the dwelling separately from the equestrian business at the same address. It was not possible to construe the reference to a person “solely employed by the equestrian business” as a general restriction on the occupation of the occupant and not as a prohibition on the use of the dwelling separately from the rest of the site. The condition referred to employment in a specific business at a specific address. A condition in a planning permission for a dwelling that required it to be occupied by a person who worked at a specified location had the effect of prohibiting the use of the dwelling separately from the specified location. The dwelling could only properly be used to provide accommodation for a person employed in the equestrian business at the facilities at that address. Any use of the dwelling “separate from” the equestrian business carried on at that address was therefore prohibited by the condition, which amounted to a prohibition on separate use or disposal within the meaning of note 2(c). It followed that the dwelling was not “designed as a dwelling” for the purposes of section 35 of the 1994 Act and did not attract entitlement to a VAT refund: Swain v Revenue and Customs Commissioners [2013] UKFTT 316 (TC) considered; Wilson v West Sussex County Council [1963] 2 QB 764; (1963) 185 EG 683 distinguished; Phillips v Revenue and Customs Commissioners [2011] UKFTT 372 (TC) and Bull v Revenue and Customs Commissioners [2013] UKFTT 92 (TC); [2013] PLSCS 55 wrongly decided. Christiaan Zwart (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; David Donaldson, of Donaldson Planning, appeared for the respondent. Sally Dobson, barrister   Click here to read the transcript: Revenue and Customs Commissioners v Shields