Customs and Excise v Blom-Cooper

Relief under the Value Added Tax Act 1994 must be construed with the notes to Group 5 of Schedule 8. Section 35(4) applies those notes to the statutory refund scheme in the same way as they apply to Group 5.

Where a building already contains residential accommodation, the conversion of a non-residential part qualifies only if it creates an additional dwelling or dwellings. Converting a non-residential part into part of one dwelling, where the building already contains residential accommodation, does not satisfy that requirement. The separate-parts provision applies only where a hypothetical separate building would itself satisfy the statutory dwelling conditions.

The respondent claimed a VAT refund for works converting a former public house into a single family dwelling. The first and second floors had previously been used as residential accommodation, while the ground floor, cellar and former roof space had been non-residential.

The Value Added Tax and Duties Tribunal allowed the claim only for works attributable to the former non-residential part. The High Court dismissed the Commissioners’ appeal. The central issue before the Court of Appeal was whether the works constituted a residential conversion under section 35 of the Value Added Tax Act 1994, and whether Note (9) to Group 5 applied through section 35(4).

The Court of Appeal allowed the appeal unanimously. Lord Justice Chadwick gave the leading judgment. Mrs Justice Black and Lord Justice Potter agreed.

1. Section 35 provides a refund scheme parallel to the zero-rating provisions in Group 5 of Schedule 8 of the Value Added Tax Act 1994. Section 35(4) requires the notes to Group 5 to apply when construing section 35, in the same way as they apply when construing Group 5.
2. The building, after conversion, was a building designed as a dwelling within section 35(1D)(a). Section 35(1D)(c) did not apply on these facts. If the different parts of the building were treated as separate buildings, none would itself satisfy Note (2), because none constituted self-contained living accommodation meeting the statutory conditions.
3. Note (7) defines the relevant meaning of non-residential, subject to Note (9). Note (9) restricts the expression conversion of a non-residential part of a building where the building already contains a residential part. Such a conversion is not treated as qualifying unless it creates an additional dwelling or dwellings.
4. The reference in Note (9) to items 1(b) and 3 identifies the only Group 5 items to which Notes (7) and (9) can apply. It does not confine the notes’ effect to those items. Through section 35(4), the same restricted meaning applies to section 35(1D).
5. The conversion created one dwelling incorporating existing residential accommodation. It did not create an additional dwelling. The judge was therefore wrong to hold that Note (9) did not apply. The Court also considered, unnecessarily for the decision, that where section 35(1D)(c) applied, the statutory conditions would ordinarily entail the creation of an additional dwelling.

1. Court of Appeal (Civil Division): Allowed the Commissioners’ appeal on 4 April 2003.
2. High Court of Justice, Chancery Division: Mr Justice Peter Smith dismissed the Commissioners’ appeal from the tribunal’s decision on 12 July 2002.
3. Value Added Tax and Duties Tribunal: The tribunal’s decision, released on 3 December 2001, allowed the claim to the extent that the works converted the former non-residential part of the building.