Daniel Dunne v The Commissioners for HMRC

As noted above, the application for planning permission refers, as relevant, to the proposed construction of a “single storey rear extension”.

The site visit report (in respect of a site visit on 13 May 2016) undertaken by the local authority planning department refers to “a proposal to extend or alter a residential property”. It further states that “the proposal is for a single storey rear extension [which] is an appropriate scale in relation to the existing building and is in keeping with the style of the property”.

The planning permission approval is for (as relevant) a “single storey rear extension”. The “Full Plan Completion Certificate” describes the works as “Construction of a single storey extension to the rear”.

The plans show the “rear extension” as a square building connected to the existing residential property by a corridor.

Following enquiries made by Mr Dunne at the time of HMRC’s refusal in October 2019, the local authority planning department wrote to him by email as follows:

Mr Dunne’s evidence was, in summary, that although the initial plan had been for the rear extension to be attached to the existing property, the plans were changed so that it became a standalone detached building, unconnected to the existing property. The VAT431NB form describes the building as a detached bungalow. He considered that this created a separate dwelling.

He explained that formal planning permission for the change was not sought because of time constraints. He planned to occupy the building with his wife. Mr Dunne’s wife was terminally ill at the time of construction and died six months after completion. The building was created in order to make sure that his wife could stay at home rather than go into a hospice. Resubmitting the application would have taken two more years which she did not have, so he discussed the changes informally with the local authority building control, who agreed that he did not need to build the corridor connecting the building to the existing property. The fact that they had issued the planning certificate was, he contended, evidence that the building was compliant with the planning department requirements and so should be regarded as being planning permission for a dwelling.

Mr Dunne’s daughter and her family had acquired the main property from him following completion of the works, and he and his wife moved into the bungalow. He now lived in the bungalow with one of his grandchildren and pays ground rent for a ‘granny flat’.

The bungalow has a separate postal address to the main building. Mr Dunne thought that the bungalow “probably” could be sold separately to the main building. He accepted that there was no separate driveway or access for the bungalow, that it shared a driveway and access with the existing building.

HMRC contended that, even without the corridor, the planning permission was for an extension of the existing building and not for a separate dwelling. An extension is specifically precluded from being the construction of a building by note 16 of the notes to Group 5 of Schedule 8 VAT Act 1994, which apply to claims under s35 VAT Act 1994. The construction was not in accordance with the planning consent given by the local authority and so the claim could not be accepted.

HMRC submitted that, further, the building could not be disposed of separately to the existing building and that the separate postal address did not create a separate dwelling.

The following facts are not in dispute:

We find that there was an informal amendment to the planning permission to remove the proposed connecting corridor between the existing property and the building, as the October 2019 correspondence from the local authority refers to the change being made without any indication that it was not agreed.

However, for a claim to succeed under s35 VAT Act 1994, it is not sufficient that a standalone building is created; the planning permission must be for a dwelling and we find that this planning permission, as informally amended, is for the extension of an existing dwelling and not for the creation of a new dwelling.

This is because we consider that it is also clear from the October 2019 correspondence with the council that the removal of the connecting corridor was not considered to create a separate dwelling for planning purposes. The approval was for an extension and this post-completion local authority correspondence continues to refer throughout to the works, as amended, as an extension to the main property, specifically as “an extension … not attached to your main house”.

The correspondence does not contemplate, let alone confirm, that approval was given for a new dwelling. The agreed informal amendment, to remove the connecting corridor from the plans, cannot be interpreted to imply a grant of permission for a dwelling. An extension of a dwelling is specifically excluded from qualifying for a claim under s35 VAT Act 1994.

The statutory requirements for a claim under this scheme include the requirement that planning permission has been granted in respect of a dwelling and that the construction is in accordance with that planning consent. As we have found that planning permission (and its informal amendment) was granted for an extension and not a dwelling, it follows that this appeal cannot succeed.

The appeal is dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.