Sarah Franklin, Senior VAT Manager

In the recent VAT case stated above, Mr Fox owned land in Cornwall, consisting of an old barn and a separate garage. These buildings were derelict and were converted such that the new dwelling would consist of two buildings, the old barn becoming the main living area and the garage solely having a bedroom and bathroom. The two buildings were within one curtilage and intended to be used together. Most of the building work was done by Mr Fox himself.

The Tribunal concluded that it is possible that a single dwelling can consist of two or more buildings. The Tribunal added that this is supported by the fact that the tests for the definition of a dwelling relate to the dwelling and not each building. On this basis the appeal was allowed. The Tribunal went on to consider Mr Fox’s second argument in case either the Fox or the Catchpole decision was overturned. The Tribunal concluded that looking at the barn in isolation it was converted into self-contained accommodation and all the tests for recovery of VAT on the barn conversion had been met.

Application

It is not uncommon that more than one building remains in such situations where a number of outbuildings are converted. HMRC can challenge VAT recovery under the DIY housebuilders’ scheme on the basis that one of the buildings is not capable of separate use or disposal and is also not intended to be used together with the other building(s). It is therefore worth considering whether there are one or multiple dwellings under the tests described within Mr T Fox. Depending on the stage of the development, it may also be beneficial to consider if slight changes to the make-up and use of the various buildings can result in a more favourable VAT position. We would be happy to advise in relation to such matters.

Background                                                                                                                                                           

The case was almost identical to an earlier case which the Judge had heard – Mark Catchpole v HMRC. According to the decision, this had been released but because of the timing had not been considered by either party. Whilst this led the Judge to the conclusion that this simplified the case, the Mark Catchpole decision does not appear to have been released yet (even though it was heard in February, one month before Fox).

The two buildings described above were within one curtilage and intended to be used together.

The decision focused on the definition of a dwelling under Note 2 to Group 5 of Schedule 8 to the VATA 1994. This states that:

“A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied:

(a) the dwelling consists of self-contained living accommodation;

(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;

(c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and

(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent”.

HMRC applied the tests above to each building. The converted garage failed the above condition because the bedroom and bathroom were not self-contained living accommodation. Mr Fox argued that as the buildings constituted one dwelling and that the tests in Note 2 should be applied to the buildings together as a whole. Mr Fox’s secondary argument was that even if considered separately the VAT costs in relation to the barn conversion should be allowed.