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VAT refund on new build

VAT refund on new build

Here is the scenario...

Planning permission was granted for a new dwelling in the front garden of an existng one. The plans that were submitted to the council showed 'conversion' of the old garage but in reality this was demolished to the slab and replaced on the same footprint.  This was the intention from the outset and the word 'replacement' rather than 'conversion' should have been used on the planning applicaiton.  Hind-sight is a wonderful thing!

The old garage slab now happens to the the living room of the new property.

HMRC have refused the application for a vat refund using the argument that the building is unlawful - it did not follow the planning consent as the garage was demolished rather than converted.  They state that this does not therefore meet the requirements of para 12 of VAT431NB and VAT act 1994 Sch 8 Group 5 Note 2(d).

We have photographic evidence that the building was completely demolished if we can persuade HMRC that the building is lawful (it passed building regs and has a completion certificate!)

Any recomendations on the method of appeal would be much appreciated.

If you know of any previous cases that have been passed on this basis, a link would also be much appreciated.


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By Hansa
20th Apr 2012 17:54

Since when are HMRC arbiter of planning regs?

I can't help directly but in planning terms I did have a similar experience.

I purchased a Victorian house with a '60's jerry built flat roofed extension behind.  Got planning consent for a pitched roof and got the builders to 'accidentally' make the structure unsafe and demolish it.  Gave details to BC (replacement of existing except roof for which permission already granted) ... they were happy (improved standards etc.  Wrote to head of planning who said retrospective permission not needed as structure looked better and was on same footprint etc  so problem solved.

Although different circumstances, the modus operandi was similar to your case.  Can you not get the planning (rather than BC dept) to give a clean bill of health, perhaps acknowledging that although it was on the same slab, it is in fact a new build?  

If yes, appeal to HMRC with your main argument being that if it looks like a duck and quacks like a duck, it probably is a duck! (backed up by the letter from planning of course).

Hope this gives some ideas and that someone else more expertise than I in Revenue appeals can add meat to my very general answer.


Thanks (2)
21st Apr 2012 15:12

The First-tier Tribunal (Tax) held in the case of Abbey Trust Homes Limited v HMRC [2011] UKFTT 150 (TC)1 that construction services supplied to construct a new dwelling could not be treated as zero rated if the planning permission granted to authorise the works was only issued after the works commenced and before they were completed.

Thanks (1)
23rd Apr 2012 19:59

Thank you both for your time and experience.

Any further comments from anyone out there would also be gratefully received.

Thanks (0)
24th Apr 2012 08:06

A hard line is taken by HMRC re;planning permissions even if planning depts are incompetent or there are unknown historical defects in planning consent.Also,it sounds like a detached garage with walls still in situ,in which case it would not qualify as new build and to qualify for a conversion it would either need to be a commercial garage or residential and not used for 10 years.whether the garage qualifies as non residential because it stands alone may need to be argued with hmrc as the meaning of together with a res house needs to decided and whether the garage is considered to be used for a residential purpose.An appeal should be made and advantage taken of an hmrc review.It could proceed to FTT with little cost but a risk based approach should be taken if it proceeds to UT or CA/HL and costs could be 5K-10k plus and you would need to pay HMRC costs if you loose after FTT.Its a difficult decision.I think the best chance is to tackle the planning permission illegality as if the new build truly was illegal it would have been demolished.But then you have to tackle the conversion qualification angle.Its a difficult call.I probably would just take it to FTT but theres a chance hmrc would appeal with related cost implications if you lost in the UT.The loss of the vat reclaim is hard to take but do you want to through good money after bad?Complain to your MP and the adjudicator.

Thanks (0)
24th Apr 2012 00:26

A hard line is taken by HMRC re;planning permissions even if planning depts are incompetent or there are unknown historical defects in planning consent.

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