In Richard Akester v HMRC [2018] TC06711, the First-Tier Tribunal (FTT) determined that the taxpayer was not entitled to recover VAT under the DIY housebuilders scheme because at the time of the claim, the intention was to operate a rental business.
This case was originally heard by the FTT in 2016 but the Upper Tribunal (UT) set aside that decision, and remitted it back to the FTT.
- The FTT had denied relief.
- The property could not be separately used or disposed of, so could not be a Dwelling.
- The taxpayer breached a condition of the planning consent when he decided to move in permanently after completion.
- The UT set aside the decision:
- Prohibition of separate use or disposal means there must be some other land or property that it cannot be separated from. There was no such land or property, so the FTT had erred in law.
- The lawfulness and satisfaction of the planning conditions should only be considered at the time of the works, based on the intentions at that time. A breach at a later date does not mean that the conditions at the time of construction were breached.
The facts are:
- The taxpayer obtained planning permission for a log cabin to be used for short term holiday lets. Planning permission restricted use to tourism purposes: it could not be used as someone’s main or sole residence.
- Before construction began, the taxpayer sold his house but retained the grounds on which the log cabin would be built.
- The log cabin construction started in May 2014, in October 2014 permission was applied for to build an extension, at which time the Council reminded the taxpayer of the restriction to tourism only.
- On 2 March 2015 the Council received an application to remove the conditions of planning.
- The completion certificate was issued on 16 March 2015.
- The property was first occupied on 25 March 2015.
- On 14 April 2015 a DIY Housebuilders VAT reclaim was submitted to HMRC.
- In July 2015 the Council approved the permission to build the extension.
- In October 2015, the Council agreed to remove the conditions of the planning, but not retrospectively.
HMRC refused the £31,833 VAT reclaim.
The FTT found for HMRC again:
- The planning restriction was an occupancy condition, not a building one. The condition would not automatically prevent a VAT refund as the occupancy condition is met if the taxpayer could show the works were not carried out in the course or furtherance of a business.
- The planning permission restricting use for tourism purposes only did permit business use.
- Personal use of the property by the taxpayer within the terms of the planning permission does not mean it could not be used for business purposes.
- Based on the information, the FTT concluded that the taxpayer expected to receive some income from letting the property.
- The planning application made it clear that one purpose of the development was to provide a property to be let to third parties. The FTT considered that there was more than a vague plan and enough for there to be a business intention at the time the planning application was submitted.
- The taxpayer did not provide enough evidence to show that his business intentions had changed by the time the construction started.
- The taxpayer could not prove that he had abandoned the business intention until the planning conditions were removed, well after the claim. He could not show that he had sufficient funds available to maintain both the log cabin and his other residence at the date of the claim, without carrying on a business in relation to the property.
The FTT concluded that the taxpayer had a business intention up until the Council removed the planning restrictions. The works were carried out in the course or furtherance of a business and the VAT refund was correctly refused.
Links
Land & Property: DIY Housebuilders scheme
DIY VAT reclaim cannot be blocked due to post-construction events
External link Richard Akester v HMRC [2018] TC06711
