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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Belverdere Properties (Cheltenham) Ltd v Customs and Excise [2004] UKVAT V18851 (29 November 2004) URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18851.html Cite as: [2004] UKVAT V18851

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18851

ZERO-RATED SUPPLY – two separate properties – the first property concerned a sale following a conversion from non-residential to residential – the property had been used as bed-sits before the conversion- not non residential use – exempt supply – second property substantial reconstruction of a listed property – no evidence to support substantial reconstruction –retrospective listed building approval not approved alterations- exempt supply- Appeal dismissed – Item 1(b) Group 5 & Item 1 Group 6 Schedule 8.

LONDON TRIBUNAL CENTRE

BELVEDERE PROPERTIES (CHELTENHAM) LTD Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MICHAEL TILDESLEY (Chairman)

MOHAMMED FAROOQ

Sitting in public in Birmingham on 4 November 2004

Mr A D Trotman for the Appellant for the initial application but not for the substantive hearing

Andrew O'Conner, Counsel for the Respondents

© CROWN COPYRIGHT 2004


 


DECISION

The Appeal

1. The Appellant appeals against a decision of the Respondents dated 7 October 2003 to disallow input tax in the sum of £33,668 for the period 1 March 1999 to 31 May 2001. The claim for input tax related to supplies associated with the re-development of two properties in Cheltenham, Belvedere House and Rothesay Mansions. The Respondents contended that the supplies were exempt from VAT, which meant that no input tax could be claimed.
2. The ground for the Appeal as set out in the Notice dated 24 November 2003 was that

"The Commissioners have ruled in respect of two property developments that the VAT liability of the supplies made by the Appellant cannot be treated as zero-rated but that they are exempt and that input VAT claimed is not deductible. The Appellant disputes these decisions and contends that they should be able to zero rate their supplies".

The Issues

3. This Appeal concerned two different aspects of the zero-rating regime for buildings. The central issue for Belvedere House was whether the development fell within the requirements for zero rating under Item 1(b) Group 5, Schedule 8 of the 1994 VAT Act (1994 Act), namely the first grant of a major interest following the conversion of commercial premises into dwellings. The first disputed matter was whether Belvedere House had been used as a dwelling before the conversion. Second, whether the Appellant could establish a constant intention to develop and sell Belvedere House from the moment it acquired the property.
4. The central issue for Rothesay Mansions was whether the development met the requirements for zero-rating under Item 1 Group 6, Schedule 8 of the 1994 Act concerning the substantial reconstruction of a listed building. The matters in dispute were whether the Appellant had carried out a substantial reconstruction of the Mansions and that the reconstruction consisted of "approved alterations".

The Legislation

5. Item 1(b), Group 5, Schedule 8 of the 1994 Act provides for the zero-rating of the first grant of a major interest in a building, dwelling or site by a person converting a non-residential building into a building designed as a dwelling or number of dwellings.
6. Note 7 to Group 5 (2001 version) states that non-residential in relation to a building means:

a) neither designed nor adapted for use as a dwelling or number of dwellings nor for a relevant residential purpose or

b) if so designed or adapted was constructed before and has not been used as a dwelling or number of dwellings or for a relevant residential purpose since 1 April 1973.

7. Item 1, Group 6, Schedule 8 of the 1994 Act provides that the first grant of a major interest in, or in any part of the building or its site by a person substantially reconstructing a protected building shall be a zero-rated supply.
8. Note 4 to Group 6 states that for the purposes of item 1, a protected building shall not be regarded as substantially reconstructed unless the reconstruction is such that at least one of the following conditions is fulfilled when the reconstruction is completed:

a) that, of the works carried out to effect the reconstruction, at least three-fifths, measured by reference to cost, are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works would, if supplied by a taxable person, be within item 2 or item 3 of this group; ("60% test") and

b) that the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest ("shell/gutting test").

9. Item 2, Group 6 zero rates the supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.
10. Note 6 to Group 6 defines "approved alteration" as works of alteration which may not be carried out unless authorised under Part 1 of the Planning (Listed Buildings and Conservation Areas) Act 1990 and for which consent has been obtained under any provision of that Part.

Case Law relating to Belvedere House

11. The Respondents relied upon Amicus Group Ltd v The Commissioners of Customs and Excise [2002] VAT Decision No. 17693 in respect of the interpretation of "dwelling" in Item 1(b), Group 5, Schedule 8 of the 1994 Act. Amicus decided that the term dwelling should be given the meaning in the House of Lords decision in Uratemp Ventures Limited v Collins [2001] 3 WLR 806 where the Lord Chancellor said "Dwelling is not a term of art, but a familiar word in the English Language, which in my judgment in this context connotes a place where one lives, regarding and treating it as home". Applying that meaning the Tribunal concluded that a bed-sit met the requirements of a dwelling within Item 1(b), Group 5, Schedule 8 of the 1994 Act. The Amicus decision broke a line of Tribunal decisions starting with Look Ahead Housing Association v The Commissioners of Customs and Excise [2002] VAT Decision No. 16816 which relied upon an interpretation of "dwelling" as containing all the major activities of life, particularly, sleeping, cooking and feeding plus toilet facilities". That interpretation ruled out bed-sits from the definition of dwelling.
12. Customs and Excise Commissioners v Briararch Ltd & Curtis Henderson Ltd [1992] STC 732 dealt with the situation where the Respondent companies had intended to make taxable supplies in the form of a first grant of a major interest in land but were prevented from doing so because of the economic climate. In the interim they granted short term leases which were exempt supplies. It was argued by Customs and Excise that the companies were not entitled to recover input tax associated with the redevelopment of the buildings because the alterations were for the benefit of an exempt supply. The High Court disagreed with Customs and Excise. The supplies in respect of which input tax had been incurred could not be said to have been wholly used in making the exempt supply since the constant intention to make the taxable supplies still subsisted. In such situations the Regulations envisaged apportionment of the input tax between the exempt and taxable supplies.

Case Law relating to Rothesay Mansions

13. Donald Barraclough v The Commissioners of Customs and Excise [1987] VAT Decision No 3378 was cited by the Respondents as authority for stating that the words " substantial reconstruction" in Item 1, Group 6, Schedule 8 of the 1994 Act involved a two stage test, namely:

a) Giving the word its everyday meaning has the building been reconstructed;

b) If so, was the reconstruction "substantial" so that

~ It meets the 60% test at Note 4(a); or

~ It meets the shell/gutting test at Note 4(b).

14. Alan Roper & Sons Ltd v The Commissioners of Customs and Excise [1997] VAT Decision No 15260 considered the issue whether a retrospective grant of listed planning consent met the requirements of an "approved alteration" as defined in Note 6 to Group 6. The Tribunal decided that "approved alteration" did not incorporate retrospective approvals. The required planning authority for carrying out the alterations must be in existence at the time the supply was made if the benefit of zero rating was to be available.

The Evidence

15. The Tribunal heard evidence from one witness for the Respondents, Ms A D Wedley, a Customs and Excise Officer from Regional Business Services South, Gloucester. A bundle of documents was also presented to the Tribunal.

The Facts Found

16. The Appellant was a limited company, operating as a property developer from premises in Cheltenham. The company had been registered for VAT from 1 April 1992 under registration number 576381411. Mrs Langrish was the sole director of the company. Her mother helped with the books.
17. Belvedere House, 33 St Georges Road, Cheltenham was acquired by the Appellant company in the early 1990's. At the time of the purchase the property was subject to a five year temporary change of use permission allowing the former commercial property to be used as bed-sitting rooms. On 21 October 1998 the Appellant company successfully applied for listed planning permission allowing change of use from commercial to nine units of residential accommodation. The construction work commenced in January 1999. On the 20 April 2000 Belvedere House was sold to Glen Scott Properties for the sum of £335,000.
18. The Respondents' records which were attached to Ms Wedley's witness statement and served on the Appellant company revealed that Belvedere House had been converted into domestic flats at some stage after 1991 and that no input tax was deductible in relation to the lettings of Belvedere House.
19. Ms Wedley conducted searches of the Council Tax Valuation List and Electoral Roll for Belvedere House at 33 St Georges Street. The search of the Valuation List revealed that nine of the flats were valued in Band A effective from 1 April 1993 except for one flat where the effective date was 22 February 1995. The Electoral Roll showed that the occupants of the various bed-sits at 33 St Georges Road were registered as voters with dates ranging from 1982, 1994, 1995, 1998 and 2000.
20. On the 10 May 2000 the Appellant company purchased the freehold of the building and the leasehold of five flats in Rothesay Mansions for £435,000. Mrs Langrish and her son purchased the leaseholds of the remaining two flats in the Mansions on 11 May 2000. The Appellant company then proceeded to reconstruct the building. The five flats purchased by the company were converted into three flats and named after famous artists. The flat on the top floor of the building known as Monet did not require listed building consent for the works carried out therein. The two flats (Van Gogh and Renoir) situated in the ground floor and basement of the building underwent extensive alterations which required listed building consent. The two flats, known as Picasso and Dali, owned by Mrs Langrish and her son were situated on the first floor and top floor respectively.
21. The three flats owned by the company were advertised for sale from May 2000 with the Van Gogh apartment being sold to Mr Hornby on 7 October 2001. The other two flats as at 16 July 2002 remained unsold but were being let on short term rental agreements. The alterations to the flats known as Van Gogh and Renoir took place before the necessary listed building consent which was granted on 6 September 2001. Mrs Langrish informed Ms Wedley that she felt the works had been approved because she liased with the planning officials at Cheltenham Borough Council throughout and had been given informal approval to start the works.
22. On 25 September 2001 Ms Wedley sent a letter to the Appellant company requesting details of the expenditure on the conversion of the Van Gogh and Renoir apartments to establish whether the 60% rule had been met. The Appellant, however, has not responded with the necessary information.

Decision

23. The onus is upon the Appellant to establish whether the conditions for zero-rating are met. The evidence heard by the Tribunal in respect of Belvedere House shows that the flats were let as bed sits before the property was converted and sold by the Appellant company in April 2000. The evidence also indicates that the lettings of the bed-sits started in the early 1990s. Although we are not obliged to follow the decision in Amicus Group Ltd we consider the approach taken by the Tribunal in that case was the correct one by including bed-sits within the definition of dwelling. We, therefore, conclude that Belvedere House had been used as a dwelling before the conversion and sale. Thus the sale did not follow a conversion of a non-residential use to a residential use, which means that the supplies connected with the conversion were exempt from VAT.
24. We also consider that the facts found in relation to Belvedere properties are materially different from those in the Briararch Ltd & Curtis Henderson Ltd decision. First, we had no evidence about the Appellant's intentions for Belvedere House when it purchased the property in the early 1990's. Second the evidence showed that there was a significant period of time when the property was let as bed-sits before it was redeveloped and sold. In Briararch Ltd & Curtis Henderson Ltd the developers intended to sell the properties from the outset but were frustrated by the economic circumstances at the time and were forced to let the properties short-term until a buyer could be found.
25. The claim for zero-rating of the alterations to Rothesay Mansions fails in our view because there was no evidence to support either the 60% test or the shell/gutting test for substantial reconstruction as defined in Item 1, Group 6, Schedule 8 of the 1994 Act. Further the alterations to the Van Gogh and Renoir apartments took place prior to the granting of listed building consent, and therefore were not approved alterations.
26. In view of our findings we dismiss the Appeal. The Appellant is, therefore, required to pay the VAT assessment for £33,668 for the period 1 March 1999 to 31 May 2001 plus the interest due. We make no order for costs. The misdeclaration penalty arising from the assessment was not part of the Appeal.
27. The Appellant or any other person interested in this matter can apply to the Tribunal within 14 days after the date of release of this decision to set aside the decision in accordance with rule 26 (3) of the 1986 Tribunal Rules.

Preliminary Matter

28. At the beginning of the Appeal hearing Mr Trotman applied for an adjournment on the ground that his client, Mrs Langrish, was ill suffering from breast cancer and that he had been unable to take instructions despite frequent attempts to contact her. Mrs Langrish was the sole director of the Appellant company. There was no other person capable of giving instructions on behalf of the company.
29. The Respondents objected to the adjournment because there was no medical evidence before the Tribunal to say that Mrs Langrish was unfit to attend the hearing and that the hearing had been previously adjourned on the ground of her illness. Further it was not clear when the Appeal could be re-listed if it was adjourned because Mr Trotman had no instructions on the conduct of the Appeal. The Respondents also considered it relevant that the Company was the Appellant not Mrs Langrish. The Respondents, however, suggested in the alternative that the Appeal hearing be adjourned for a day to enable Mr Trotman to obtain the necessary medical evidence.
30. Mr Trotman informed the Tribunal that the alternative suggestion of a short adjournment was not feasible because he would be unable to speak to Mrs Langrish in the next 24 hours. He advised the Tribunal that he had no proof of evidence from Mrs Langrish. He also stated that he warned the Respondents that Mrs Langrish would not be fit to attend a hearing until January 2005. However, Mr Trotman accepted that he had not mentioned this fact in his correspondence with the Tribunal and had given availability from November 2004.
31. We decided to refuse Mr Trotman's application for adjournment on the following grounds:

a) There was no documentary medical evidence to support Mr Trotman's assertion that Mrs Langrish was unfit to attend the hearing.

b) The hearing had originally been set down for the 8 and 9 July 2004 but had been adjourned in June at the request of Mr Trotman. because of Mrs Langrish's illness

c) Mr Trotman accepted that in his correspondence with the Tribunal he raised no objections about the re-listing of the Appeal in November.

d) Mr Trotman had no proof of evidence from Mrs Langrish so it was impossible for the Tribunal to assess the importance of her evidence.

e) The uncertainty about when the Appeal could be re-listed. There was no indication from Mr Trotman when Mrs Langrish would be fit to give evidence.

32. In view of our decision to refuse his application Mr Trotman withdrew from the hearing. We were of the view that the Appellant was not present and therefore could make an application to reopen the hearing under rule 26 of the 1986 Tribunal Rules if it was dissatisfied with our decision on the merits of the Appeal. The Respondents agreed with our interpretation of the applicability of Rule 26. However, the powers of the Tribunal under Rule 26 are discretionary. If an application was made under Rule 26 we would anticipate that the Appellant would provide documents to support Mrs Langrish's unfitness to attend the hearing and that her evidence would be material to the issues in dispute.

MICHAEL TILDESLEY

CHAIRMAN

RELEASED: 29 November 2004

LON/03/1159