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Continue readingThe owner of a listed home has avoided a hefty VAT bill in respect of the construction of a garage to house his classic car collection after the First-tier Tribunal (FTT) accepted that HM Revenue and Customs (HMRC) had erred and that the project should have been treated as zero-rated for VAT purposes.
HMRC had insisted that 20 per cent VAT should be added to the cost of building the single-storey structure, which abutted the listed building and was fitted with double folding doors and its own heating and light supplies. It was submitted that the project was not an approved alteration to a protected building and so did not qualify for zero-rating under the Value Added Tax Act 1994.
However, in allowing the homeowner’s appeal, the FTT found that HMRC had taken the mistakenly narrow view that, in order to qualify for zero-rating, either the garage had to be built at the same time as the house to which it was attached or the project must have involved ‘substantial reconstruction’ of the listed building.
The FTT accepted the homeowner’s arguments that the listed building had been ‘altered’ by the addition of the garage and that the latter satisfied the statutory test. Although HMRC’s decision had accorded with its published internal guidance, the wrong conclusion had been reached on the particular facts of the case.
Changes to the rules introduced in 2012 mean that approved alterations are now only zero-rated for VAT where the alterations were in progress at 21 March 2012 or listed building consent had been applied for before that date. The transitional arrangements come to an end on 30 September 2015, when zero-rating will cease for all such alterations.
It is interesting that HMRC fought this case at the FTT, bearing in mind that the tax involved was small and zero-rating on approved alterations to protected buildings is scheduled for abolition. It shows the pressure HMRC are under to maximise tax yields.
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