20934                                             

ZERO RATING – Protected dwelling – Construction of new drainage system – Whether an “approved alteration” – Whether “repair or maintenance” – VATA 1994, Sch 8, Gp 6, Item 2. Note (6) – appeal dismissed

LONDON TRIBUNAL CENTRE

DR DAVID THOMAS HAIGH
	Appellants

and
		
THE COMMISSIONERS FOR HER MAJESTY’S  
REVENUE AND EXCISE	Respondents	

Tribunal:  RODNEY P HUGGINS (Chairman)
				       SHEILA WONG CHONG FRICS

Sitting in public in Birmingham on 24 January and 9 December 2008

The Appellant in person 

Christian Zwart, Counsel instructed by the Solicitor for Her Majesty’s Revenue and Excise  for the Respondents.

	

 CROWN COPYRIGHT 2009
DECISION
The appeal

1.   The Appellant, Dr David Thomas Haigh (Dr Haigh) lives in a house known as The Tan House, Ludlow Road, Little Stretton, Church Stretton, Shropshire (The Tan House).  It is listed as a grade II building by the Secretary of State.  In 2005 Dr Haigh decided to connect the property to mains drainage in Ludlow Road at the front of The Tan House but did not apply for listed building consent until later.  It was not granted by the local authority.  Dr Haigh paid his contractor including £837.55 VAT for the sewer connection work.

2.   On 26 July 2006 Dr Haigh asked for a refund of the VAT in accordance with Item 2 of Group 6 of Schedule 8 to the Value Added Tax Act (the 1994 Act).  The Commissioners’ decision in a letter dated 20 September 2006 was that the construction work were standard-rated. This decision was upheld on re-consideration and Dr Haigh appeals against that decision.

The legislation

3.   Part I of the Planning (Listed Buildings and Conservation Areas) Act 1990 (the 1990 Act) makes provision for listed buildings.  Section 1 provides :

“(5)  In this Act, “Listed buildings” means a building which is for the time
being included in a list compiled or approved by the Secretary of State
under this section; and for the purposes of this Act –

(a)    Any object or structure fixed to the building;

(b)    Any object or structure within the curtilage of the building which
although not fixed to the building, forms part of the land and has
done so since 1 July 1948, shall be treated as part of the building.”

4.   Then follow various provisions relating to the demolition, alteration or extension  to a listed building.  These can be summarised insofar as they relate to this appeal, as follows :

“Section 7

Subject to the following provision of this Act, no person shall execute or
cause  to be executed any works for the demolition of a listed building or for
its alteration or extension in any manner would affect its character as a
building or special architectural or historic interest, unless the works are
authorised.

Section 8

(1) Works for the alteration or extension of a listed building are authorised if –

(a)  Written consent for their execution has been granted by the local
planning authority or the Secretary of State; and

(b)  They are executed in accordance with the terms of the consent and of
any conditions attached to it.

Section 9

(1)   If a person contravenes section 7 he shall be guilty of an offence.

(2)   Without prejudice to subsection (1), if a person executing or causing
to be executed any works in relation to a listed building under a listed
building consent fails to comply with any condition attached to the
consent, he shall be guilty of an offence.”

Subsection (3) provides a range of statutory defences which may be summarised as including urgent necessity, health and safety matters, the immediate necessity for the world, and that detailed justification was sent to the local planning authority as soon as practicable.

Subsection (4) states that the Court may impose a fine of up to £20,000 and/or a term of imprisonment not exceeding two years.

5.  Section 10 of the 1990 Act states :

“(1) Except as provided in section 12 to 15, an application for listed building
consent shall be made to and dealt with by the local planning authority.

(2)  Such an application shall contain :

(a)  Sufficient particulars to identify the building to which it relates,
including a plan;

(b)  Such other plans and drawings as are necessary to describe the works
which are the subject of the application; and

(c)   Such other particulars as may be required by the authority.”

6.   By section 16, the local planning authority (and subsequently the Secretary of State on appeal) has a discretion to grant or to refuse listed building authorization. In so doing, it is required by subsection (3) to have special regard to the desirability of preserving the building or its setting or any features of special architectural or historic interest which it possesses.

7.   Section 38 gives the local planning authority a discretion to issue a listed building enforcement notice where two criteria have been met, and which include a breach of section 9(1) or (2).  By subsection 7 authorisation is deemed to have been granted in specified circumstances.

8.   Group 6 of Schedule 8 to the 1994 Act deals with zero rating in respect of protected buildings, and provides, so far as is relevant to this appeal as follows :

“GROUP 6 – PROTECTED BUILDINGS

Item No

1.   …

2.   The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

3.   The supply of building materials to a person to whom the supplier is supplying services within item 2 of this Group which includes the incorporation of the materials into the building (or its site) in question.

NOTES

(6)   ‘Approved alteration’ means –
(a)   …
(b)   …
(c)   in any other case, works of alteration which may not … be carried out unless authorised under, or under any provision of –
(i)  Part I of the Planning (Listed Buildings and Conservation Areas) Act 1990 and for which … consent has been obtained under any provision of that part, but does not include any works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs or maintenance work.

(9)  Where a service is supplied in part in relation to an approved alteration of a building, and in part for other purposes, an apportionment may be made to determine the extent to which the
supply is to be treated as falling within item 2”.

The evidence

9.   Dr Haigh gave evidence and a bundle of documents, plans and photographs were produced by the parties.

10.   From the evidence before us, we find the following facts.

11.   There was no significant dispute as to the facts in this appeal. In the first place, it was common ground between the parties that The Tan House was a “protected building” for the purposes of Schedule 8. Dr Haigh had purchased this 16th century timber-framed house in December 2002,  Although just about fit for habitation the house was in need of extensive repairs to bring it up to modern standards,  Because of the building’s age and the fact that it was a listed building, Dr Haigh particularly sought the advice of Mr Colin Richards (Mr Richards) the Conservation Officer of South Shropshire District Council (SSDC) who often visited the property.  Dr Haigh realized that to renovate The Tan House would take several years and require various listed building consents from SSCD.  He obtained the first consent relating to various alterations on 20 July 2004 and another on 1 October 2004 for reinstatement of a window to the front elevation.  Neither are the subject of this appeal.

12.   After re-wiring the house, installing central heating and replacing leaded lights, his next concern was to modernise the drainage system serving the property and to remove the Edwardian extension on stilts at the rear of the house which was in a parlous dilapidated state due to water penetration.  This extension contained a bathroom and connected to the septic tank drainage system sited in the rear  garden.  The septic tank served the whole property.  All the waste water was removed through a gulley in front of the house into a stream the other side of Ludlow Road.

13.   On the first floor at the front of the house was a bathroom containing a bath and wash hand basin but no toilet.  Dr Haigh decided that it was necessary first to upgrade the bathroom at the front of the house by installing a toilet and constructing a new drainage system to the mains sewer in Ludlow Road,  When this was completed and functioning, he could then demolish the extension at the rear and construct  a new bathroom at the rear of the first floor and connect into the linking mains sewer in Brook Lane to the southwest of the house [This sewer connects to the main one in Ludlow Road].

14  The reason why Dr Haigh wanted two sewer connections in Brook Lane and Ludlow Road was to avoid a sewer running through the house.

15.   On 27 April 2005 SSDC granted listed building consent under reference 1/05/16575/LB in accordance with the application and accompanying plans, subject to the conditions specified for “the demolition of extension to dwelling” at The Tan House. This related to the edwardian extension at the rear of the house.

In a covering letter dated 28 April 2005, the Council stated, “No deviation from an approved plan should take place unless it has been approved by the Council.  If any works are carried out which are not in accordance with an approved plan, the Council may take enforcement action which would require the deviation from the approved plan to be rectified, at the owner’s expense.”  No mention was made either in the applications or the consent to the proposed first sewer works.

16.   Dr Haigh had extensive discussions with Mr Richards about his proposals particularly as to whether listed building permission was required for the front bathroom sewer connection (the first sewer works).  The local authority deliberated for a long time. Dr Haigh had, after some difficulty, found a local contractor, A P Price Limited, who would carry out the work.

17.  As the District Council was still prevaricating about whether it was necessary for listed building consent to be required for the first sewer connection and Mr Price, the builder, had included the work in his schedule and if it was not adhered to there would be several months further delay. Dr Haigh decided to proceed with the first sewer works.  He was under the impression that the works would not require consent and also as his house was a listed building would be zero-rated for VAT purposes.  He did not check the position with the VAT helpline at this stage.

18.  Mr Price carried out the first sewer works in October and November 2005.  Because no listed building consent was produced to him by Dr Haigh in respect of these works, he submitted an invoice on 7 November 2005 for £5,623.55 including a VAT element of £837.55.  Dr Haigh paid this account in full and did not at that time query the VAT.

19.   The first sewer works consisted of an external downpipe from the bathroom on the first floor at the front of the house which led into a underground pipe and thence connecting to the mains sewer in Ludlow Road.

20.   Mr Richards was then consulted by Mr Haigh as to what documentary evidence could be given to the SSDC to enable both the sewer connections to be zero-rated for VAT purposes.  Dr Haigh was planning the second sewer connection at the rear of the house to service a conversion of a room into a bathroom with WC.  He was advised by Mr Richards to include the sewer connections at both the front and rear of the house along with various other proposed alterations.

21.  On 29 March 2006 the Appellant contacted the National Advice Service (NAS) and stated he was having alterations done to the Grade 2 residential listed building for which he had listed building consent.  He said that he was knocking down part of the building which was original servants’ quarters as it was deemed to be detracting from the rest of the building.  He was advised that this work should be zero-rated for VAT as it altered the fabric of the building. Dr Haigh also mentioned he was putting in a bathroom where one did not exist before.  He was again advised that if listing building consent was both needed and had been obtained, zero-rating should apply.

22.  On 5 April 2006, the Appellant applied to the SSDC for listed building consent in eleven areas.  The first item gave the following description of the proposed works as “connection of The Tan House to main sewer in Ludlow Road”  The second item was “connection of The Tan House to main sewer in Brook Lane”.

23.   The Application form stated as a Note at the beginning of the description of the proposed works “Works not specified below will not be included in any consent issued.  It is an offence to carry out works to a listed building without the necessary consent.”

24.   On 25 May 2006 SSDC granted listed building consent “in accordance with the application and accompanying plans” and stated that the consent was for 

“Internal works to provide additional bathrooms and internal area, provision of access to bedroom 4; and repainting of stonework to house and outbuilding”.

This consent was subject to three conditions, two of which are not relevant but the second stated as follows :

“No works shall be carried out other than those described in the application.  REASON :  to ensure that no unauthorised alterations to the listed building are carried out; in accordance with Policy E3 of the adopted South Shropshire Local Plan.”

 25.  As neither the first nor second sewer connections had been mentioned Dr Haigh approached Mr Richards to ascertain why this had occurred.  He was informed that a special meeting had been held at SSDC with their legal advisers to discuss the problem and the conclusion was that it would be illegal for SSDC to give listed building consent for work that did not require such consent.  Dr Haigh requested a letter to that effect.

26.   Mr Richards wrote to Dr Haigh on 4 July 2006 in the following terms :

“I refer to your recent application 1/06/18111/LB in respect of internal works to provide additional bathrooms utility area and access to bedroom four.

These works required formal listed building consent as alterations which affected the character and appearance of the building.  The drainage works are an integral element of the provision of the bathroom but as they are under ground do not require specific listed building consent.

In reality you cannot construct the bathroom without the subsurface drainage but nevertheless I am unable to give a specific certificate of approval under the Listed Building legislation.

I trust this clarifies the matter.”

27.   The works detailed in the consent granted on 25 May 2006, along with the second sewer connection at the rear of the building not covered by the listed building consent, were carried out in July 2006 by the same contractor, A P Price Limited.  This company, at the request of Dr Haigh sent an invoice and separate statement to him on 19 July 2006.

28.   The invoice was for a total of £3,160 for the second sewer connection but no VAT was charged as it was stated to be “zero-rated”.  The statement purported to be for £3,160 with a credit for £837.55 in respect of the VAT charged for the first sewer works.  A letter accompanied the invoice from the building company’s Secretary stating :

“Please can you let me have a copy of the Listed Building Consent otherwise I          will have to account to you for the full VAT at the standard rate of 17.5%.”

29.  The building company then contacted the NAS for assistance and was informed again that if the customer did not have a listed building consent, the work must be standard rated.

30.   On 28 July 2006 Dr Haigh wrote at length to the Cardiff Office of H M Revenue and Customs.   He said he wished to challenge the decision of the Respondents as indicated by NAS that as he did not have the requisite consent beforehand the £837.55 was not refundable.

31.   Mr James Muir an officer of H M Revenue and Customs replied on              20 September 2006 confirming that “in order for construction works to qualify as being ‘an approved alteration’ to a listed building, as detailed in public notice 708 section 9 it is a requirement that listed building consent is both required and granted prior to the commencement of the construction works.”
32.  On 15 December 2006 the Appellant requested re-consideration of his application.  A reply was sent to him on 15 February 2007 amplifying the same reason for upholding Mr Muir’s decision that the connection of the first sewer should be standard rated for VAT.

The following cases were referred to in the appeal

33.  Co-operative Retail Services Ltd and Another v Taff-Ely Borough Council and Another (1979) 39 P & CR223

Attorney-General (ex Co-operative Retail  Services Ltd v Taff-Ely Borough Council and Another (1981) 42 P & CR, HL

Kent County Council v Secretary of State for the Environment and Another (1976) 33 P & CR 70 (Kent County Council)

Bernard Wheatcroft Ltd v Secretary of State for the Environment and Another (1980) 43 P & CR 233 (Bernard Wheatcroft)

Regina v Ashford Borough Council ex parte Shepway District Council (1998) EWHC Admin 488  (Ashford BC)

Polhill Garden Centre Ltd v Secretary of State for the Environment and Sevenoaks District Council (1998) EWHC Admin 670.

Carter Commercial Developments Ltd (in Liquidation) v (1) Secretary of State for Transport Local Government and the Regions (2) Mendip District Council (2002) EWCA Civ 1994 (Carter Commercial)

Skerritts of Nottingham Ltd v Secretary of State for the Environment Transport and the Regions (2002) 3 WLR 511.

Mrs Amanda Wynne Adams v The Commissioners of Customs and Excise (2002) Decision No 18054. (Adams)

The Commissioners’ contentions

34.   Mr Zwart, for the Commissioners, produced a helpful skeleton argument.  He acknowledged that the house was a “protected building” for the purposes of Item 2 of group 6 of Schedule 8.

35.   First he argued that the relief under Item 2 was an exception under the 1994 Act and therefore zero rating had to follow correct chronological events. Listed building consent was required before the first sewer works were undertaken.  This had not occurred.

36.   He then outlined the procedures contained in the 1990 Act using various authorities to illustrate how by section 7 authorization is required in relation to the alteration or extension of a listed building which would affect its character as a building of special architectural or historic interest.  By section 9(1), it was an offence to contravene section 7.

37.   Under section 10(1) authorization was required to be made to and dealt with by the local planning authority.  By section 16, the local planning authority (SSDC in this case) could grant, including subject to conditions, or refuse consent.

38.   Mr Zwart relied upon two authorities to support his contentions that (1) the local planning authority may grant planning permission for less than that for which authorization was sought. (Kent County Council at page 75-76 in the judgment of Sir Douglas Frank QC); and (2) the authority is entitled to reduce by condition the development for which planning consent is sought.  (Bernard Wheatcroft at page 241 in the judgment of Forbes J).

39.  He further contended that as planning permission is a public notice which can be relied upon by third parties, it is required to be construed objectively as between its four corners.  (Ashford BC at page 27/1).  Also it was held in Carter Commercial that an objective approach should be made in interpretation of a planning permission whereby the intentions of the parties (in this case the applicant and SSDC) are irrelevant.

40.  Reference was made to the 2002 VAT tribunal decision of Adams where the tribunal considered the application of Group 6, Item 2 and Note 6 in relation to another Grade II listed building subject to urgent works of stabilisation resulting from a landslide.  The Commissioners accepted that the underpinning by demolition of an old retaining wall and construction of a new one to prevent landslip in the future was zero-rated.  The appeal concerned the VAT rating of the new retaining wall and its drainage system.  The tribunal held that the wall’s drainage system was an integral part of the house without which it could not function and was therefore zero-rated, although it was not specifically included in the listed building consent for the new wall.

41.   Mr Zwart also maintained in passing that the second sewer system serving the new bathroom at the rear of the house also did not satisfy the requirement of Item 2 of Group 6 of Schedule 8 to the 1994 Act as listed building consent had not been obtained.

The Appellant’s contentions

42.   In his appeal notice, the Appellant stated :

“VAT is a nationally applied tax but in reality the exemption of owners of listed buildings undertaking alterations is being granted according to the decisions of local authorities.  In practice, payment is only required where it is decided that listed building consent for sewer connections is not required. Collection of, and exemption from VAT should not be dependent on post code.”

43.   At the hearing, Dr Haigh referred to his letters to H M Revenue and Customs dated 28 July and 15 December 2006 when he set out at length his reasons for asking for repayment of the VAT incurred.  In his letter of 28 July 2006 he said he challenged the decision for the following reasons 

“ 1. The Tan House is a listed building and both connections are alterations in the definition used for VAT purposes and therefore should be VAT exempt.

2.  Colin Richard’s letter of July 2006 does not give listed buildings consent as this cannot be given and therefore it is difficult to understand why this is being taken as the required evidence to justify VAT exemption on the second connection.  However, if it is being accepted then it applies equally to the first connection and explains why written permission was not obtained in November 2005 in spite of my attempts to obtain it before the first connection was made.

3.  In Oct/Nov 2005 I attempted to obtain listed buildings consent for the first sewer connection before that connection was made and for all the reasons explained above I failed but HM Revenue and Customs are saying that because I did not obtain the unobtainable I am being charged VAT on an alteration carried out on a listed building.”

44.   In his second letter of 15 December 2006 in response to the decision of Officer Mr Muir in his letter of 20 September 2006, Dr Haigh asked the Reconsideration Team to take into account the following two arguments :

“ Mr Muir states that because SSDC have taken a view that listed buildings permission is not required for a sewer connection then the connection work at my house is liable for VAT in spite of the project being an alteration to a listed building.  I have contacted listed buildings officers in other local authorities across England and a number of them have said that if the same circumstances re our sewer connection were presented to them regarding a house in their authority they would requires an application for listed building permission before the connection was made.  The granting of listed building permission would enable the connection to be VAT free.  If I lived in an authority where listed building permission was required I would not be having the difficulties I am asking you to review.

The line taken by Mr Muir means, in effect, that a national tax, VAT, is being levied according to local interpretations made by local authorities and therefore lacks consistency from one local authority to another.  I hope you recognise that this is unacceptable.

I had two sewer connections made to The Tan House – one at the front and one at the rear of the house as we wanted to avoid sewer pipes going through the house. The first connection was the one at the front and commencement of this was held up for a considerable time whilst SSDC deliberated as to whether listed building permission was required.  I had extreme difficulties in booking a contractor to undertake the sewer connection work and he threatened that if the connection did not go ahead at the time he stated his timetable indicated that he could not make the connection for several months in the future.  This explains why the first connection at the front of the house was made prior to my receipt of the letter from Colin Richards, SSDC listed buildings officer, dated 4.7.06  - a copy of which I hope is on your file.”

45.   He then added in his second letter that the letter from Mr Richards dated        4 July 2006 “was accepted by our local VAT office as a substitute for listed building permission for the second sewer connection …”

46.  Dr Haigh also produced a statement from a Mr Will Scott who has long experience in the historic building environment.  He supported Dr Haigh in his arguments.

Reasons for decision

47.  In this appeal there is no dispute that the works undertaken (sewer connections) were carried out to a listed building.  What is in dispute is whether the works were authorised alterations to a listed building within the exception as detailed by Note 6 to Group 6 Schedule 8 of the 1994 Act and qualify for zero-rating.

48.  We agree with the Commissioners view that under the provision of Note 6 of Schedule 8 and section 7 of the 1994 Act, in order for works to a listed building to qualify for zero-rating, listed building consent for the works must be granted by the local planning authority before the works are undertaken.  There is, in our opinion, no relaxation of this rule for whatever reason and it must be strictly applied in accordance with the statutory provision.

49.   In this case, the building was originally connected in the back garden to a septic tank for sewerage.  It was subsequently connected to the mains sewer system by two separate sewer connections, one to the front of the house and one to the rear of the house.  The local authority (SSDC) informed the Appellant after the first sewer works had been completed, that the work to connect the main sewer did not require listed building consent as the sewer was underground and the work did not affect the appearance of the building.  The work to connect the front sewer was carried out in Nov 2005 and the company that did the work informed the Appellant that the work had to be standard rated as no listing building consent had been approved.  This was, in our view,  good advice.

50.   The Appellant attempted to obtain listed building consent prior to November 2005 but did not put in an application and stated in his letter to HMRC dated        28 July 2006 at the fourth paragraph that he was informed by SSDC after November 2005 when the first sewer connection had taken place that he should include the details of both sewer connections in a planning application. The actual application for listed building consent in respect of the first sewer connection was therefore retrospective.  When listed building consent dated 25 May 2006 was received in respect of application 1/06/18111/LB it did not cover (or even mention) sewer connections.

51.   In a letter to the Appellant dated 4 July 2006 from SSDC the local authority Conservation Officer (Mr Richards) explained that the reason why the consent dated 15 May 2006 excluded the sewer connections was that those works were an integral element of the provision of the bathroom at the front of the house but did not require specific consent as the works were underground and did not affect the character or appearance of the building.  It was confirmed in that letter that it was not possible to issue a specific certificate of approval under the Listed Building legislation as consent was not required.
52.  We find in the circumstances of this appeal it is not possible for an application for listed building consent to be made retrospectively.  With hindsight, we would suggest that perhaps Dr Haigh should have applied for listed building consent for the first sewer connection before the work was carried out.  The evidence produced to the tribunal proved conclusively that there was an exterior downpipe linking the existing bathroom to the underground pipework.  Mr Richards stated in his letter dated 4 July 2006 that “the drainage works are an integral element of the provision of the bathroom but as they are underground they do not require specific listed building consent …”  That was not the case.  If the local authority had refused to grant consent, then Dr Haigh would have had the opportunity of appealing to the Secretary of State. By installing the drainage system (particularly the said external pipe) he was probably contravening the provisions of the 1990 Act as he did not have valid consent  The local authority do not appear to have pursued this line.

53. Dr Haigh argued that other local authorities had granted listed building consents in similar circumstances relating to the underground drainage connections and this should have been forthcoming.  Regretfully, we cannot accept that argument as a valid reason. He has to accept that he needed a consent before proceeding because of the statutory requirement.

54.  Although not the subject of this appeal, we consider that it is appropriate for us to comment on the VAT position of the second sewer works linking the rear bathroom to the main sewer in Brook Lane. In our opinion, the situation is different to the first sewer connection.  A listed building consent was applied for on 5 April 2006.  The Appellant asked for 11 items including both the front and rear sewer connections.  The rear sewer connection was linked to the construction of the new bathrooms for which consent was granted on 25 May 2006.  The facts in the Adams case are similar.  There, the tribunal decided that the part of the drainage system extending from the house to a ‘perforated land drain’ qualified for zero-rating on the grounds that it was an integral part of the house’.  In that case, consent had been forthcoming.

55.  It was disclosed at the hearing that HM Revenue and Customs are not pursuing the non-payment of VAT on the supply of the second sewer connection.  The contractor had accepted it was zero-rated as consent for the bathrooms had been forthcoming before the work was carried out.  We are of the view that this was a correct situation.

56.   We sympathise with Dr Haigh’s predicament concerning the VAT on the supply of the first sewer connection. However, our hands are tied by the legislation. The tribunal is statutory by nature and cannot take into account other factors. Mr Zwart quite properly pointed out to the tribunal the judgments of the Court of Appeal in Carter Commercial which made it quite clear that an objective approach should be made in interpretation of a planning permission and the intentions of the parties are irrelevant.  We agree with that reasoning.

Decision

57.  The appeal is dismissed  the drainage construction works carried out in October and November 2005 are liable to VAT at the standard rate of 17½% in the sum of £837.55.
58.  There is no order as to costs.

Rodney P Huggins
Chairman 21 January 2009

LON/2007/0588