Occupancy planning restriction barred VAT refund

Where VAT is incurred “on the construction of a building designed as a dwelling” Section 35 of the Value Added Tax Act 1994 (“the 1994 Act ”) provides for a refund of VAT in certain circumstances. The notes to Group 5 of Schedule 8 to the 1994 Act apply to the interpretation of that section (subsection 35(4)).

Note (2)(c) to Group 5 provides:

“A building is designed as a dwelling ……where in relation to each dwelling the following conditions are satisfied – …………
(c) the separate use or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision;…..”

In the United Kingdom Upper Tribunal (Tax and Chancery Chamber) case of Revenue & Customs v Burton [2016] a planning consent contained a condition (“Condition 4”) that:

“the occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in Park Hall Lake Fishery or a widow or widower of such a person, or any resident dependants.”

Did that condition prohibit the “separate use or disposal” of that house?

The Tribunal said it clearly did. What was prohibited was the use of the house separate from the fishery at Park Hall. The aim of Condition 4 was to ensure, by means of an occupancy restriction, that the accommodation was retained for the purposes of the Park Hall fishery business. Indeed, the planning consent explained in detail how certain important requirements of the Park Hall fishery business were to be met through the occupation of the Building.

Nor was the condition any the less a prohibition on separate use merely because the class of occupants had been expanded beyond the Park Hall fishery’s workers or retired workers, to include their widows, widowers and resident dependants. Each of those occupants still had to have a specific link to the fishery at Park Hall. It was that link to specific land or premises that was the critical factor.

So there could be no refund of VAT under subsection 35(1).

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.