In Richard Akester v HMRC [2017] UKUK 0404, the Upper Tribunal (UT) set aside the First-Tier Tribunal’s (FTT) dismissal of a DIY VAT refund claim. The FTT can only consider whether construction works are lawful during the period of construction. Breaches of planning conditions after construction, should be ignored.
- The taxpayer obtained planning permission for a log cabin.
- The log cabin was to be used for short term holiday and business letting in the garden of his home.
- The permission granted stated that it could only be used for tourism purposes and not on a permanent basis or as a person’s main or sole residence.
- Before construction, the taxpayer sold his home and ultimately, the taxpayer and his family occupied the log cabin as their principal residence.
- HMRC refused the DIY VAT reclaim on the basis that the use as a main residence was contrary to planning permission and therefore unlawful. HMRC also stated that the claim would also have failed had the log cabin been used as planned, as it would have been a business.
- The taxpayer appealed.
The FTT decision was made on the following basis:
- They did not agree with the reasons HMRC denied the claim:
- The works were not unlawful.
- The property was not used for business and therefore HMRC could not deny the claim on that basis.
- That said, the FTT found in favour of HMRC:
- The planning permission condition, that the property could not be a principal residence, meant that the separate use or disposal of the dwelling was prohibited.
- The dwelling, although lawful, was not constructed in accordance with the planning consent as the taxpayer effectively breached the condition when he decided to live their permanently.
The UT set aside the FTT decision:
- Prohibition of separate use or disposal means it cannot be used separately or sold separately from some other land. In other words, it can only be used or only be sold along with some other land. This is not the case, so the FTT erred in law.
- The log cabin could clearly be separately used and disposed of from other land, in particular because it was on the site of the taxpayer’s home which was sold prior to the construction by the taxpayer of the log cabin (which the taxpayer retained separately).
- The work’s lawfulness and its satisfaction of planning conditions should be considered at the time of the construction works and the intention at that time. If the conditions are breached after construction, that does not mean the works did not meet the conditions at the time of construction.
- There does not appear to be sufficient evidence that the taxpayer’s intention changed and he planned to occupy the property permanently during the period of construction.
The UT set aside the FTT decision and has remitted it back to the FTT to rehear.
In its decision the UT, although disagreeing with the FTT’s reasons for its decision, did point the FTT towards why it believes the claim may still fail:
- The intention at the time of construction appears to have been to let the property after construction.
- This means that the works could be considered to have been carried out in the course or furtherance of a business, being the intended property letting business.
- The FTT will need to consider whether this intention amounts to an economic activity for VAT purposes and for the purposes of a DIY refund claim.
- If the works are carried out in the course or furtherance of a business, the DIY claim will fail.
Links
External link to case: Richard Akester v HMRC [2017] UKUK 0404
