VAT and the DIY housebuilders’ scheme-live/work units

A recent case, Anthony Barkas, considered a development involving two barn-like properties with light industrial use planning consent (B1). The taxpayer applied for permission to convert one of the barns into a dwelling, the other to remain B1 use, the two to be used together as a live work unit (although the two properties were not physically linked they were close to each other). Permission was granted but with conditions, one of which (“condition 6”) was:

“6. The workshop/office within the application site shall only be used/operated by the occupiers of the dwelling hereby granted permission.”

The taxpayer submitted a DIY house builder’s claim. HMRC rejected this on the basis of condition 6, as “it is not possible to use the dwelling separately from the working space” the claim was not valid.

HMRC had an email from the planning authority which confirmed HMRC’s interpretation that the separate disposal of the dwelling was not permitted was correct.

The legal criteria for a dwelling included that “the separate use, or disposal of a dwelling is not prohibited . . .” The Tribunal ruled that condition 6 simply placed limitations on the use of the remaining commercial building rather than a prohibition on the disposal of the dwelling. They placed “no weight” on the planning authority’s opinions; the conditions must be interpreted as they stand. Therefore the DIY claim was valid.

Increasingly the rulings on DIY cases appear to be varying on very slight differences in facts and this highlights the importance of considering at a very early stage in a development whether there are likely to be any points of contention and addressing these with HMRC or the planning authorities as appropriate.