Housebuilder loses tribunal case

A recent tribunal case examined a VAT refund claim in respect of the VAT DIY Builders scheme. The scheme is a set of special VAT rules which allow the qualifying construction costs of new homes and certain conversion works to be zero-rated.In this case, the homebuilders (Mr and Mrs Campbell) built a new home in 2012 on land adjacent to their current home. Mrs Campbell also owned and ran a livery business which was located a quarter of a mile from their current home. The outline planning permission for the new home (from August 2006) included the following condition ‘…the occupation of the dwelling shall be limited to a person solely employed by the livery business located within the lands outlined in blue on the approved plan attached, and any resident dependants.’HMRC took the view that this condition prohibited the separate use of the new home from the livery business and rejected the claim for a VAT refund on the basis that the new home was not designed as a dwelling for VAT purposes. The couple appealed this decision on the basis that there was no prohibition from them selling the new home to someone else as long as that individual was employed in the livery business. The appellants sought to refer to some other First Tier Tribunal cases were planning conditions did not affect the status of a VAT refund, however these arguments were wholly rejected by the Tribunal.One final part of the decision did seem a little unfair to Mr and Mrs Campbell. It transpires that an amended planning permission was issued on 22 April 2015 after the new home had been built and during the time when the hearing of the appeal was stood over which removed the contentious planning condition. However, the Tribunal cited the 2014 decision of the Upper Tribunal inHMRC v Asim Patel which confirmed that the legislation is quite clear in the regard. The removal of the planning condition in 2015 can have no effect on the decision of the Tribunal. The taxpayers’ appeal for a refund of VAT was dismissed in full.