In Cavendish Green Limited v HMRC  UKUT 0066, it was found that the sale of land on which a new house was to be built and on which a large boundary wall had been built did not have sufficient planning to enable zero-rating.
- Cavendish Green bought a semi-detached residential property with the intention to demolish it and build a new detached residential property for sale.
- As part of the process, Cavendish Green were required:
- To make good the other semi-detached property after demolition of their property,
- Transfer land to the other semi-detached property, such that there was a 3-metre gap between the other property and the boundary.
- Build a new boundary wall.
- Planning permission was given for the new property.
- After demolition of the old property and prior to construction of the new property, a prospective buyer approached the company.
- The prospective buyer wanted to change the design of the house and wanted a much larger boundary wall. A contract for sale was agreed subject to planning.
- The required ‘making good’ works and boundary wall works continued during the period awaiting planning permission.
- The planning permission for the new design was granted and the land was sold.
- The large boundary wall was found to have been completed prior to the sale. It was later decided that the wall required additional planning permission and it was not therefore covered by the planning permission held at the date of sale.
- A new contractor was hired to build the house.
- Cavendish Green claimed VAT back on its costs on the basis that it had made a zero-rated sale of a new Building designed as a dwelling.
- HMRC refused the claim on the basis that the wall was part of the demolition of the old property and not part of the construction of the new property.
- This meant that the sale of the property was exempt, as it was not an ongoing new build, and the VAT was irrecoverable.
- Cavendish Green appealed to the First-Tier Tribunal (FTT).
The FTT found the following:
- The legislation clearly allows for zero-rating of a partially completed building.
- The boundary wall was capable of being part of a building designed as a dwelling if required conditions were met.
- One condition is that the building is constructed in accordance with valid planning permission.
- At the time the wall was constructed and completed, planning permission had not been received.
- The wall was too big to benefit from automatic statutory planning permission.
- At the time the wall was complete there was no planning permission for that wall.
- Cavendish Green were wrong to contend that the disposal of the incomplete works could still qualify for zero-rating, absent required planning permission, if the required planning permission was in place by the time the property was completed.
- The planning permission had to be sufficient at the Time of supply.
- At the time of Cavendish Green’s supply, the only structure was the wall, and this did not have planning permission at that date. It therefore failed the condition.
- It could not be a zero-rated sale.
- Cavendish Green appealed to the Upper Tribunal (UT).
At the UT:
- Cavendish Green attempted to submit new evidence which would potentially show that the wall was incomplete and did benefit from automatic statutory planning consent at the time of sale.
- The UT refused to admit the evidence:
- The way it was dealt with by Cavendish Green was ‘most unsatisfactory’.
- They should have made a formal written application supported by evidence that the conditions for allowing additional evidence were met.
- HMRC should have been given an opportunity to respond to the UT formally prior to the hearing.
- Informally indicating to HMRC that additional evidence will be submitted and taking HMRC’s silence as consent was not appropriate.
- It would not be fair and just in this case to admit the fresh evidence.
- Basing the decision on the information that was given to the FTT:
- The FTT were right to conclude that the wall had been completed at the time of sale.
- As the completed height was in excess of the limit for automatic statutory planning, the wall did not have adequate planning permission at the time of sale.
It is apparent that this decision could potentially have gone in favour of the taxpayer had they approached the appeal differently.
This case demonstrates the importance of giving HMRC and the courts as much information as possible at the time of the appeal.
If the taxpayer could have shown that the wall met the conditions for automatic statutory planning permission, it appears as though the courts would have found in favour of the taxpayer:
- They have found (albeit in the FTT and not binding), that the (substantial) boundary wall is a structure capable of being part of a building designed as a dwelling.
- If planning permission for that wall had been held at the time of the supply, it would have met the conditions for being a dwelling.
- This suggests it would have been possible to benefit from zero-rating.