Separate Use, Planning and VAT


VAT isn’t the first thing you tend to think of when you look at the wording of a planning consent, but the VAT payable on the construction costs of a property can be severely affected by the wording, as a recent case shows. It involved a man who wanted to build a new dwelling on the grounds of his listed manor house. The new building was completely self-contained and he claimed the works were zero-rated as they were alterations to a protected (listed) building under item 2 of Group 6 of Schedule 8 to the Value Added Tax Act 1994, because the building had been constructed on the site of a former cottage and pig sties that had been demolished.
The planning consent specified that the new building could only be used ‘for purposes either incidental or ancillary to the residential use’ of the existing property. The question that arose was whether the wording meant that the planning permission prohibited separate use of the dwelling.
Under VAT law, a property can only be zero-rated if separate use is not prohibited, but did the planning permission mean that separate use was prohibited? HM Revenue and Customs claimed that it did and therefore the building works were subject to VAT.
However, the VAT Tribunal accepted that as the dwelling was a separate building, it could not be argued that it had to be used by the same family as used the manor house. It could be used, for example, by relatives or visitors. Furthermore, there was no prohibition in the planning permission against selling the new building separately.
There was, therefore, no prohibition on separate use, with the result that the building was zero-rated for VAT.
Partner Note
Steve Lunn: UKVAT 20981, 20 March 2009. See

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