[2010] UKFTT 353 (TC)

TC00635

Appeal numberTC/2009/12372

VAT-reduced rate-student accommodation- whether ‘residential accommodation for students’ liable to VAT at standard rate or ‘ changed number of dwelling conversion’ liable to VAT at reduced rate – Value Added Tax Act 1994 Schedule 7A – over-arching development student accommodation – VAT at standard Rate- appeal dismissed

FIRST-TIER TRIBUNAL

TAX

OPAL CARLETON LIMITEDAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS (VAT)Respondents

TRIBUNAL: David S Porter (Judge)

Roger Freeston (Member)

Sitting in public in Manchester on 10 May 2010

Michael Conlon QC instructed by Mazars LLPChartered Accountants for the Appellant

James Puzey Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

1

DECISION

  1. The Appellant(Opal) appeals against the decision of the Respondents (HMRC) in a letter dated 2 October 2009 disallowing VAT at the reduced rate of 5% in relation to refurbishment works carried out by H G Construction Limited on behalf of Opal at Tufnell Park Halls of Residence, Huddleston Road, London N7. The Appellant says that the accommodation relates to dwellings and is therefore entitled to the reduced rate as a ‘changed number of dwellings conversion’. (See Item 1, group 6, Schedule 7A VATA 1994). HMRC say that the refurbishment works were part of an overall scheme to provide student accommodation for the University of North London and as such the refurbishment fell to be standard rated as use as a ‘relevant residential purpose’ namely ‘residential accommodation for students’ (see paragraph 6,group 6, Schedule 7A VATA 1994). Vat at 17.5% amounted to £937,160.75 and at 5% to 267,760.21. Opal have paid the VAT at 17.5%. Although Opal are the customer for whom H G Construction Limited carried out the refurbishment works and by whom VAT has been raised, the parties have agreed that Opal have a sufficient interest in the matter to bring this appeal.
  1. Mr James Puzey of counsel appeared on behalf of HMRC, and Mr Michael ConlonQCappeared on behalf of Opal and MrAndrew Charles Pape provided a witness statement and gave evidence under oath as to the refurbishment works. Three jointly agreed bundles were provided for the Tribunal and both Mr Puzey and Mr Conlon produced skeleton arguments. We were referred to the following cases:
  • William and Glyn’s Bank v CCE (1974) VATTR 262
  • Case 416/85,EC Commission v United Kingdom[1988] STC 456
  • Smith v CCE (1997) VTD 5579
  • University of Bath v CCE (1996) VTD 14235
  • University Court Of University of St Andrews v CCE (1997) VTD 15243
  • CCE v Marchday Holdings Limited [1997] STC 272
  • Thompson v CCE (1998) VTD 15834
  • Sherwin and Green v CCE (1999) VTD 16396
  • Moore v Secretary of State for the Environment (1999) 77 P&CR 114
  • Look Ahead Housing Association v CCE (200) VTD 16816
  • Uratemp Limited v Collins [2002] ALL.E.R .46
  • Amicus Group Limited v Collins [2002] VTD 17693
  • Oldrings Development Kingsdere Limited (2002) VTD 177
  • Agudus Israel Housing Association Limited v CCE (2004) VTD 18798
  • JFB & FR Sharples vHMRC (2008) VTD20779

The Facts

  1. The parties produced a statement of agreed facts. The Disputed Decision is whether the Building Works are correctly standard rated. Opal contends that they are liable to VAT at 5%, by virtue of section 29A (1)(a) of VATA 1994 read with Item 1, Group 6, Schedule 7A thereof. Opal has carried on business as a property developer at The Place, Ducie Street, Manchester, M1 2TP. H G Construction Limited is registered for VAT under VAT registration number 750 7260 42. On 1 August 2002 the University of North London merged with LondonGuildhallUniversity to become LondonMetropolitanUniversity (the University) which took over the rights of University of North Londonand LondonGuildhallUniversity. The University is and was the freehold owner of Tufnell Park Halls of Residence(the Development Site). Prior to the building works carried out by H G Construction Limited, the Development Site comprised a six-storey building, which included a total of 227 individual bedrooms and communal kitchen, dining and bathroom facilities. Those were utilised by University of North London and subsequently the University as residential accommodation for its students.
  1. On 29 May 2001 University of North London applied for planning permission inter alia to demolish some existing buildings on the Development Site and construct additional student residential accommodation. The Application was refused by the local planning authority on 24 July 2001. Following an appeal by the University under section 78 of the Town and Country Planning Act 1990, the Inspector granted planning permission on 8 November 2002 for the construction of a new building (Ref.PO11088). This planning permission only relates to the new construction works and is not the development that is the subject of this appeal. A further application for planning permission, specifically in relation to the Building Works, was made by the Appellant and granted by the planning authority on 30 August 2008.
  1. On 27 July 2007 the University granted the Appellant a lease of the whole Development Site for a term of 99 years commencing on that date at a peppercorn rent, but for a premium of £37,500,000. By a contract, dated January 2008, between H G Construction Limited and the Opal,H G Construction Limited agreed to carry out the Building Works at the Development Site at the price of £26,244,924.93 together with VAT thereon, if applicable. The Building Works were carried out between January 2008 and August 2009. Following completion of the building works the building has been used as residential accommodation for students during term time with occasional short lettings for others out of term time.
  1. The Lease to Opal covers the entire site both the rebuild and refurbishment. The Authorised Use in the lease is:

‘ as student residential accommodation together with ancillary use or such other use as the Landlord may consent to, such consent not to be unreasonably withheld or delayed’. (our emphasis)

Clause 8 provides:

‘For the initial ten years of the term, the Tenant to use the Property only for the Authorised Use. Thereafter subject to the provision of clause 8 and any other relevant term of this lease the Tenant is free to use the Property as it desires’.

Clause 10 provides:

Legislation and planning.

10.1 The Tenant is to comply with all statutes, other legislation and any notice, order, proposal, requisitions, direction or other communication from any public authority in respect of the Property, their use and occupation or the carrying out of any works to the Property and to indemnify the Landlord against any breach of this obligation

The first planning permission, in relation to the demolition of existing buildings and the construction of additional student residential accommodation, was allowed on appeal and was zero rated for VAT purposes. In allowing the appeal the Planning Inspector referred to the planning policy and stated at paragraphs:

‘21. The appeal proposal would result in a building providing accommodation for a total of 776 students on the whole site. The scheme envisages the extension of the southwest wing of the existing hall so that it and the new construction would together form the main spine of the enlarged building.

41. Vehicular Traffic Until 2001 the car park (providing space for about 45 cars) falling within the cartilage of the existing hall of residence was open for use by students….. Under the proposal the 25 spaces which would be available on site would be reserved for staff and students with disabilities.

43. The appellant’s curtailment of car parking spaces for students within the curtilage of the site has coincided with changes in national planning policy… aimed at reducing reliance on cars as a means of transport. The purpose of these changes is largely concerned with the promotion of sustainable forms and patterns of development on a very long time scale and their effects may not be apparentin the shorter term. Similarly, I anticipate the appellant’s attempts to manage the manner in which the hall of residence generates traffic may not be immediately fully effective. Nevertheless, the provisions of the unilateral undertaking( our emphasis) submitted by the appellant are in my opinion continued expression of its intention in this regard.’

55 … The appellant’s proposal for the curtailment of cars and the management of taxis has coincided with changes in the planning policy the purpose of which is to reduce dependence on private cars.’

As we understand it the undertaking in relation to car parking, vehicular traffic and disturbances relates to the use of the entire site and therefore impinges on the Development Site.

The second planning permission P080327 issued on 20 August 2008was a full planning application for premises located at Tufnell Park Hall of Residence and allowed the:-

‘revisions to fenestration of building including replacement windows; new windows opening to the north elevation, replacement render panels along the boundary wall and fire access gates and associated reconfiguration and upgrading of internal space resulting in reduction of residential units and associated alterations.’ (Our emphasis)

This is the second phase of the Development started in 2002 and referred to in the inspector’s decision at paragraph 21 above and the already approved scheme under ref PO11088

  1. The case officers reporting the planning committee papers, dated 23 July 2008 state:
  1. Proposal. The proposal stems from an internal reconfiguration of the rooms of the existing Halls of Residence to reduce the number of rooms from 233 to 145 rooms…
  1. Relevant History. The existing buildings were purpose built for university accommodation in the early 1970’s and have remained little altered since then. In November 2002 planning approval was given at appeal for the expansion of the overall site, including the construction of anew block of up to ten storeys and incorporating the existing buildings to provide accommodation for an additional 552 students.

13. Land-use. There is no proposal to change the land use as a student hall of residence.(our emphasis). It is proposed to reduce the number of existing student rooms by 78; from 223 to 145 in total. This will allow for the replacement and upgrading of the existing studio rooms. Each new unit will have its own bathroom pod, kitchenette, and sleeping/study area. The changes form part of the overall development of the site in accordance with the approved scheme ref P011088.

23. Conclusion. The alterations to the existing student accommodation are welcome and will provide a visual improvement as well as being compatible with the new build next door. The proposal is therefore recommended for conditional; approval.

  1. Correspondence and emails have passed between the various parties leading up to this appeal. H G Construction Limited’s own view, expressed in an email dated 4 April 2008, was that the building was used for a relevant residential purpose both before and after the refurbishment works. Opal’s representative, Jackie Wells of Mazars LLP, wrote to the officer dealing with the liability issue, Allen Fletcher, on 2 May 2009 seeking agreement for the reduced rate of VAT on the basis of a ‘change in number of dwellings conversion’. She accepted that the accommodation prior to the works was for a relevant residential purpose and stated that it was then viewed as self-contained dwellings because each studio had kitchen, shower and lounge facilities
  1. Mr Pape, who gave evidence under oath, was employed as a Project Manager for Opal to manage the development of the site through to completion. He was not able to give any evidence as to the VAT position. He confirmed that the floor plans of the site show that the accommodation, which originally consisted of 277 rooms with shared toilet and kitchen facilities, now consisted of 145 self-contained studio units. The units were double the size of original bedrooms with no shared facilities or interconnection. The units could be used as dwellings.
  1. Mr Conlon produced to the tribunal a copy of the Opal standard terms and conditions for the assured shorthold tenancy agreement, which every tenant is required to enter into prior to taking occupancy of a room within an Opal Accommodation Hall.Neither the tribunal nor Mr Puzey had had the opportunity to consider the agreement and Mr Puzeyaskedthat he be allowed to comment on the same after the hearing, if necessary. The Judge agreed to that application. No further action has been taken by Mr Puzey. The agreement is for students and is in the form of an Assured Shorthold Tenancy and clause 5.4 requires the student to use the premises only as private living accommodation. Clause 6 requires that the Tenant is at all material times during the tenancy period a student in full time education ... any change occurring to the status of the Tenant, which results in the Tenant no longer being a student in full-time education, will require the student to surrender the agreement . Clause 5.32 requires the student to be bound by the disciplinary code and rules and regulations relating to student occupancy of residential property as published by the University or College at which the Tenant attends.’

Submissions

  1. Mr Puzey submitted that Opal maintains that the categorisation of the use of the building, which is being refurbished,for VAT purpose under Schedule 7 A, changed from that of relevant residential purposei.e. student accommodation, to single household dwellings,(as defined in paragraph 4, Group 6,Schedule 7A VAT 1994 [VATA]). There are three types of residential conversion that qualify for reduced VAT in that group.
  • The ‘Change in number of Dwellings’ is the first of these and requires:
  1. A conversion of a building or part of a building.
  2. That after the conversion the premises contain one or more single household dwellings, which is different to the number (if any) that existed there before.
  3. That no part of the premises contains the same number of single household dwellings after conversion as it did before.
  4. That a single household dwelling is a dwelling designed for occupation by a single household, which complies with the four conditions of note 4 (3) (a) –(d), i.e. self-contained living accommodation, with no direct internal access between units, nor prohibition on separate use or separate disposal.

These four conditions in note 4(3) replicate those for a dwelling in note 2 of group 5 of schedule 8, which deals with the construction of buildings.

a.The second of the qualifying conversions is the multiple occupancy conversion (Notes 4 and 5), whereby premises are converted into one or more multiple occupancy dwellings, there being none there before

b.The third type of qualifying conversion is a special residential conversion (Notes 7 and 8), whereby a building or buildings or parts of a building which were nor used for a ‘relevant residential purpose’ before conversion are to be used solely for a ‘relevant residential purpose’ after conversion. Use for a relevant residential purpose is defined in Note 6 as one of seven specific types of home, institution or residential accommodation. Note 6(d) specifies ‘residential accommodation for student or school pupils’. These categories are reproduced in Note 4 to Group 5 of Schedule 8where zero rating is allowed for the construction of buildings designed as dwellings or intended for use for a ‘relevant residential purpose’ or relevant charitable purpose (Item2 (a)).The first grant by a person converting a non-residential building into dwellings or a building intended for a ‘relevant residential purpose’ is also zero rated (Item 1(b)).

‘Non-residential’ is defined in Group 6, Schedule 7A and Group 5, Schedule 8, as being neither designed. nor adapted for use as

i) a dwelling or number of dwellings

ii) for a relevant residential purpose

(See Note 9(4) to group 6 and Notes 7 and 7A to group 5)

Lastly, a conversion is not a qualifying conversion under Note 10(1) to Group 6 of Schedule7A, if any statutory planning consent for the conversion has not been granted.

  1. As Mr Conlon makes clear in his skeleton argument, there is no direct authority on the issue before the tribunal and on the construction of the change of number of dwellings provision. Mr Conlon alleges that there is a different number of units of accommodation to that which existed before, and seeks to restrict the scope of the appeal to consideration of physical characteristics of the accommodation post-refurbishment and to contrast that with what was physically in place beforehand. This approach disregards the use of the premises and the use for which the planning permission was granted. HMRC position is that it is not possible to alter the designation of ‘relevant residential purpose’ accommodation to something else simply by changing the number of rooms and upgrading the facilities, without a permitted change of use. The ‘relevant residential purpose’ categories are defined by the use to which the premise is applied. If following the refurbishment they are still applied for the same use this does not mean that they have been converted into ‘dwellings’ for the purposes of attracting the reduced rate of VAT. Opal’s position appears to be that premises may come within both of the categories at the same time and that it is for the owner/developer to choose how to categorise the property. One problem with this approach is that throughout Schedules 7A, 8 and 9 a distinction is drawn between dwellings and ‘relevant residential purpose’ accommodation. If Opal is correct there would be no need for the ‘relevant residential purpose’ categories because all such accommodation could come within the definition of a ‘dwelling’, be it single or multiple occupancy. It is accepted that the cases pointed out by Mr Conlon make it plain that a single room without a bath or cooking facilities can be a dwelling (seeUratemp Limited v Collins [2002] ALL.E.R .46; Amicus Group Limited v Collins [2002] VTD 17693; Oldrings Development Kingsdere Limited (2002) VTD 177. It is understandable that Opal does not now claim that the previous rooms in the hall were in the category ‘relevant residential purpose’ because if the above cases are followed the rooms were existing dwellings. HMRC submit that what was on the site before was student accommodation and that remained the case after the refurbishment. The physical characteristics of the accommodation are irrelevant for this purpose. It may be self-contained or not but it can still be a ‘relevant residential purpose’.
  1. Mr Conlon submitted that the key issue is whether the Building Works are standard rated or whether they are reduced rated (liable to VAT at 5%) as a ‘qualifying conversion’. The reduced rate arises under section 29A VATA read with Item 1,Group 6,Schedule 7A VATA.Opal’s case is that the Building Works are within Notes 2(12) (a) to Group 7A as ‘a changed number of dwellings conversion’ as defined in Notes 3, 4(1) (3) and 11 to that group. Note2(10) lists three types of work which are considered to be a ‘qualifying conversion’ Only one type is relevant for Opal ‘a changed number of dwellings conversion’ To obtain reduced rating:

1. There must be a conversion of premises consisting of a building where two conditions are satisfied: