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HMRC internal manual

VAT Construction

Dwellings - an explanation of terms: what ‘designed as a dwelling or number of dwellings’ means: retrospective planning permissions, covenants and similar provisions

The Note is to be applied to the covenant, planning permission or similar provision in force during the currency of the works up to completion.

In Martin James Gilbin (VTD 20352), the Tribunal said:

The Tribunal in Harris concluded that the condition had to be satisfied’ as at the time of the design of the building (that is, at the date of the planning consent) and not later’. The planning consent in this context must in our view be the consent which permitted the works (or if there was more than one such consent the last before the works were undertaken) or any consent subject to which the works were undertaken.

Attempts to satisfy the Note by applying for the retrospective removal of a prohibition on separate use or disposal should be examined carefully.

Typically such an application is successful only in removing the prohibition from a current date after completion of the dwelling, and not rendering it void. Removing a prohibition after completion of the dwelling means that during the progress of the works to completion the prohibition remained in force and the Note isn’t satisfied.

Should the removal of a prohibition be effective from a time before completion, then works from that point to completion satisfy the Note. However, the practical effect of removing the condition before completion is that supplies of building work up to the time it is removed aren’t in respect of a building designed as a dwelling and won’t be eligible for the zero rate or reduced rate.

In MJ Watson (TC00780), the appellant had tried to recover VAT through the DIY Builders and Converters VAT Refund Scheme on a building where Planning Permission had been granted for a self-contained dwelling albeit one that could not be used separately from an existing dwelling. Following rejection of his claim for VAT under the provisions of the Scheme, the appellant submitted a retrospective planning application and the offending condition was removed albeit from a date some six months later than the completion of the dwelling. The appellant’s re-submitted claim was again rejected because the amended planning permission didn’t cover the period when the works were carried out.

The Tribunal rejected the appeal:

It was submitted [by HMRC] that subsequent qualification in fact within Note 2(c) and/or (d) by reference to the Second Permission is legally impermissible because: (i) as at the relevant time of works completion. Note 2(c) was not capable of being satisfied by reason of the then currency of Condition 5 of the First Permission; (ii) Note (2)(d) required the particular works to have been undertaken before and not after the event of a grant of the Second permission and thereby the Second Permission is irrelevant.

In my judgment [HMRC’s] reasoning as set out above is impeccable and therefore Mr Watson cannot succeed in this appeal. For Mr Watson to have succeeded he would have needed the Council to have used its powers under s.73A at the time it issued the retrospective planning consent to backdate the consent to 25 August 2005, so that he would have a valid planning permission at a time before the work began, this was not done by the Council for the reasons set out above. That they might have done it unfortunately does not avail Mr Watson in this appeal.