Customs & Excise v Jacobs

For VAT relief on a residential conversion, the relevant question is whether the converted building or part was previously non-residential and whether the conversion produced an additional dwelling where the building already contained residential accommodation. The statutory note concerning mixed-use buildings applies even where the whole building is converted. An additional dwelling may arise from an area previously used for residential purposes, provided that at least part of it was created from a previously non-residential part. Relief is unavailable for works referable to parts that were already residential or used for a relevant residential purpose.

The Commissioners appealed under section 11 of the Tribunals and Inquiries Act 1992 against a decision of the Value Added Tax and Duties Tribunal allowing Mr Jacobs to recover VAT paid on works converting Hopwell Hall into a residence.

The building had previously been a residential school. It included pupils’ accommodation, a headmaster’s flat, staff bed-sits and school facilities. The conversion produced a dwelling for Mr Jacobs and three self-contained staff flats. The central issue was whether note (9) to Group 5 of Schedule 8 to the Value Added Taxes Act 1994 applied and, if so, whether the staff flats constituted additional dwellings.

1. The appeal was dismissed. The Tribunal’s whole-building approach was inconsistent with the Court of Appeal’s decision in Customs and Excise Commissioners v Blom-Cooper [2003] STC 669, which was binding.

2. Note (9) to Group 5 of Schedule 8 applied where a whole building was converted but already contained residential accommodation. The conversion therefore had to produce an additional dwelling for relief to be available under section 35(1D) of the Value Added Taxes Act 1994.

3. On the Tribunal’s findings, the three staff flats were self-contained dwellings and constituted additional dwellings. It was open to construe the reference to the conversion in note (9) as referring to the conversion actually undertaken, even though an additional dwelling might have been created partly from accommodation that was previously residential.

4. Alternatively, at least two staff flats had been constructed, in part, from areas previously used for non-residential purposes. Note (9) therefore did not prevent recovery of VAT attributable to works on those non-residential parts.

5. VAT attributable to the conversion of the headmaster’s flat and the boys’ accommodation had to be excluded. Those areas were already residential or used for a relevant residential purpose under notes (4) and (7) to Group 5. The precise form of order was left for further submissions.

1. High Court (Chancery Division) The appeal from the Tribunal was dismissed, subject to further submissions on the form of order.

2. Value Added Tax and Duties Tribunal The Tribunal decided in favour of Mr Jacobs and allowed recovery of VAT.