[2011] UKFTT 150 (TC)

TC01024

Appeal number: TC/2009/10181

Appeal against HMRC’s decision that the Appellant’s building supplies were standard rated and not zero-rated because at the time the relevant supplies were made the building did not comply with the condition in Note 2(d) to Group 5 of Schedule 8 of the Value Added Tax Act 1994 case dismissed

FIRST-TIER TRIBUNAL

TAX 

	ABBEYTRUST HOMES LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: MRS.S.M.G.RADFORD (TRIBUNAL JUDGE)					           MRS.S.CHEESMAN			

Sitting in public at 45 Bedford Square, London WC1 on 10 January 2011

Mr N.Gibbon for the Appellant

Mr R.Wastell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal against the decision by HMRC dated 22 October 2008 that VAT in the sum of £34,255.32 had been underpaid by the Appellant for the VAT periods 07/07 to 07/08 as the Appellant’s building supplies were standard rated and not zero-rated as the Appellant had declared.
2.	The issue in the appeal was whether or not the building to which the Appellant’s supplies related complied with the condition in Note 2(d) to Group 5 of Schedule 8 of the Value Added Tax Act 1994 (“VATA”).
Background and facts
3.	The Appellant is a limited liability company which was registered for VAT on 1 August 2006 with VAT registration-number 879 9153 54. The business activity given by the Appellant in its application-for VAT registration was “property development/building contractor”.
4.	On 28 May 2008 the Appellant submitted its 04/08 VAT return to HMRC. The return showed a payment due to the Appellant of £15,926.65. As a result of the size of payment due, the return was selected for verification by HMRC.
5.	On 14 July 2008 an HMRC officer visited the Appellant to verify the 04/08 VAT return. During the visit the officer found that the Appellant was supplying building services on a project at Toutley Court, Doctor’s Lane, Hermitage, RG18 9TA (“Toutley Court”). The officer was informed that the property was owned by the son and daughter-in-law (the “Client”) of one of the Appellant’s directors. The Appellant was acting as the building contractor. 
6.	The Appellant indicated that the house was a new build and that the former dwelling on the site had been demolished to ground level. The building work was funded by payments from the Client. The officer noted that the payments had been round figures paid to the Appellant without production of invoices. The Appellant explained that the payments had been made to enable it to buy materials to further the building work. The Appellant said that the payments were loans from the Client which were to be repaid upon completion of the project and prior to a final account being drawn up.
7.	On 15 July 2008 HMRC wrote to the Appellant noting that they had searched the West Berkshire Council planning portal but could not obtain the relevant planning notice for the building work at Toutley Court. HMRC noted that the only planning notice which they could see on the portal had a project summary description of “extensions and addition of first floor” but did not refer to a new build dwelling. HMRC requested a copy of the planning decision notice for the project along with any additional correspondence that the Appellant had had with the planning authority detailing the scope of the project. HMRC noted that it was important to clarify the exact nature of the project before the VAT treatment could be considered properly.
8.	On 25 July 2008 the Appellant wrote to HMRC providing the planning decision notice as requested. In a decision dated 27 January 2005 the notice gave planning permission for “extensions and addition of first floor”. The Appellant noted that there was a discrepancy with the planning decision notice and confirmed that a letter had been sent to the West Berkshire Council’s Planning Office asking for the necessary changes to be made.
9.	On 22 August 2008 the Appellant wrote to HMRC enclosing photographic evidence to show that the building at the property had been demolished and rebuilt. HMRC did not retain copies of the photos but they were produced to the Tribunal by the Appellant. They confirmed that the building at the property had been demolished and rebuilt.
10.	On 12 September 2008 HMRC wrote to the Appellant to inform it that the building works currently did not qualify for zero rating. In order to qualify for zero rating statutory planning consent for the construction of a new dwelling was required and the dwelling must have been constructed in accordance with that consent. The current planning consent was for the conversion and extension of an existing dwelling and not for the construction of a new dwelling. As such the building works were standard rated for VAT purposes. HMRC did not dispute that the building had been demolished in its entirety but informed the Appellant that this was not sufficient in itself for the building to be classified as a new dwelling for VAT purposes.
11.	HMRC also informed the Appellant that if retrospective planning consent was obtained prior to the completion of the works, it would be possible for the remaining works to qualify for zero–rating, subject to the normal rules, from that time onwards, but that zero-rating could not be retrospective. The letter also advised the Appellant that HMRC considered the payments from the Client to the Appellant as consideration for the supplies made to the Client and that as such output tax should be accounted for on receipt of the payments.
12.	Mr Jennings, a director of the Appellant responded on 16 October 2008 providing a schedule of money received from the clients but he said that these were technically and actually loans which would be repaid. The Appellant noted that none of the payments had been made against an invoice and were not paid at any particular stage of the work. With regard to the planning permission he also said that the building should be zero-rated either because the planning consent implied that the original building would have to be demolished or because the Appellant had applied for (and would get) retrospective planning permission. The schedule of payments showed that the Client had paid £240,000 between 18 July 2007 and 26 August 2008.
13.	On 22 October 2008 HMRC wrote to the Appellant and informed it that the liability for the work was fixed at the time of performance. At the time that the work was performed there was no valid statutory planning permission in place and therefore the work to date was therefore standard rated and could not become zero-rated even if retrospective planning permission was granted. HMRC advised the Appellant that they would therefore have to issue an assessment for the output tax due. A schedule which showed VAT due of £34,255.32 was included with the letter. On the same date HMRC raised assessments for each VAT period between 07/07 and 07/08.
14.	On 7 November 2008 Mr Jennings wrote to HMRC Officer Sparkes disputing the decision. He said that the clients had not invoiced for any work done so that no tax point had yet arrived. The Appellant informed HMRC that they had not requested payment from the Client and that it was the decision of the Client to pay the money. The payments that had been made were ad hoc. A letter from the West Berkshire Council was enclosed which confirmed that there were new foundations for the extensions. The existing walls were removed and new walls built to ensure that the brickwork matched and the thermal insulation was improved. The Appellant requested that the matter be held in abeyance until retrospective planning permission was granted.
15.	HMRC treated the Appellant’s letter of 7 November 2008 as a request for reconsideration of the assessment. On 14 November 2008 Officer Sparkes responded pointing out that a tax point is taken when payment for services is received even if invoices have not been issued He reiterated that the works did not qualify for zero-rating whether or not retrospective planning permission was granted.
16.	On 22 December 2008 the Appellant requested formal reconsideration of this decision and said that they considered that the assessment was invalid because the supply was zero-rated under item 2 of Group 5 of Schedule 8 to the VAT Act as it was the building of a new house; they considered that the Appellant possessed the necessary planning permission in accordance with Note 2(d); the dwelling was not a conversion, reconstruction or alteration of an existing building under note 16(a) nor an enlargement or extension to an existing building under Note 16(b); the building was clearly a new residential dwelling and the previous dwelling had been removed.
17.	On 23 January 2009 HMRC wrote to the Appellant to inform them that the original decision had been upheld.
18.	On 6 May 2009 the Appellant lodged a notice of appeal against the HMRC decision of 22 October 2009 simply on the grounds that “the Appellant will argue that the supply of building services in this case is zero rated”.
19.	On 19 October 2009 HMRC requested that the Appellant provide further information in respect of its appeal.
20.	On 27 November 2009 the Appellant’s representative provided HMRC with further information as requested. He confirmed that the Appellant had been granted retrospective planning consent dated 29 May 2009 which allowed “demolition of original house, erection of new dwelling” following an application for retrospective planning permission dated 2 April 2009 and included revised drawings to accompany the planning permission.
21.	The Appellant’s representative stated in the covering letter that the new construction was started immediately adjacent to the original house. The original house was then demolished and the new construction was completed over the land that had been occupied by the original house. The Appellant’s representative said that the new house therefore occupied a footprint which was larger than that which had been occupied by the original house. The Appellant’s representative noted that at the date upon which the retrospective planning permission was granted the new house had not been completed and the construction services had not finished. The certificate of completion had not been issued either.
22.	It was submitted by the representative in his letter that since the supply of construction services had not been completed by the time that retrospective planning permission was granted, the construction of the new house was carried out in accordance with that permission and that the whole project was entitled to zero-rating under item 2(a) of Group 5. No mention was made in the letter of the monies paid by the Client being loans.
23.	On 30 December 2009 HMRC submitted their Statement of Case in response to the Appellant’s further information.
The Law
24.	Section 1 of the Value Added Tax Act 1994 (“VATA”) states:
	(1)Value added tax shall be charged, in accordance with the provisions of this Act—
a)on the supply of goods or services in the United Kingdom (including anything treated as such a supply),
b)on the acquisition in the United Kingdom from other member States of any goods, and
(c)on the importation of goods from places outside the member States,
and references in this Act to VAT are references to value added tax.
(2)VAT on any supply of goods or services is a liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply.
25.	Section 6 of VATA states:
(1)The provisions of this section shall apply for determining the time when a supply of goods or services is to be treated as taking place for the purposes of the charge to VAT.

(2)Subject to subsections (4) to (14) below, a supply of goods shall be treated as taking place—
(a)if the goods are to be removed, at the time of the removal;
(b)if the goods are not to be removed, at the time when they are made available to the person to whom they are supplied;
(c)if the goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place, at the time when it becomes certain that the supply has taken place or, if sooner, 12 months after the removal.
(3)Subject to subsections (4) to (14) below, a supply of services shall be treated as taking place at the time when the services are performed.
(4)If, before the time applicable under subsection (2) or (3) above, the person making the supply issues a VAT invoice in respect of it or if, before the time applicable under subsection (2)(a) or (b) or (3) above, he receives a payment in respect of it, the supply shall, to the extent covered by the invoice or payment, be treated as taking place at the time the invoice is issued or the payment is received.
26.	Section 30(2) of VATA states:
A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.
27.	Item 2 of Group 5 of Schedule 8 of VATA states:
	The supply in the course of the construction of—
(a)a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or
(b)any civil engineering work necessary for the development of a permanent park for residential caravans,
of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.
28.	Note 2 to Group 5 of Schedule 8 of VATA states that:
(2)A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied—
(a)the dwelling consists of self-contained living accommodation;
(b)there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
(c)the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
(d)statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.
29.	Note 16 to Group 5 of Schedule 8 of VATA states:
	For the purpose of this Group, the construction of a building does not include—
(a)the conversion, reconstruction or alteration of an existing building; or
(b)any enlargement of, or extension to, an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings; or
(c)subject to Note (17) below, the construction of an annexe to an existing building.
30.	Note 18 to Group 5 of Schedule 8 of VATA states:
	A building only ceases to be an existing building when:
(a)demolished completely to ground level; or
(b)the part remaining above ground level consists of no more than a single facade or where a corner site, a double facade, the retention of which is a condition or requirement of statutory planning consent or similar permission

31.	Article 62 of Council Directive 2006/112/EC (“the VAT Directive”) states that:
	For the purposes of this Directive:
(1) ‘chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;

(2) VAT shall become ‘chargeable’ when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.

32.  Article 65 of the VAT Directive states:
Where a payment is to be made on account before the goods or services are supplied, VAT shall become chargeable on receipt of the payment and on the amount received.

33 Article 66 of the VAT Directive states :
By way of derogation from Articles 63, 64 and 65, Member States may provide that VAT is to become chargeable, in respect.of certain transactions or certain categories of taxable person at one of the following times:
(a) no later than the time the invoice is issued;
(b) no later than the time the payment is received;
(c) where an invoice is not issued, or is issued late, within a specified period from the date of the chargeable event.
34.	 Article 93 of the VAT Directive states:
The rate applicable to taxable transactions shall be that in force at the time of the chargeable event.

35.	Regulation 93 of the VAT Regulations 1995 states:
(1) Where services, or services together with goods, are supplied in the course of the construction, alteration, demolition, repair or maintenance of a building or any civil engineering work under a contract which provides for payment for such supplies to be made periodically or from time to time, those services or goods and services shall be treated as separately and successively supplied at the earliest of the following times—
(a) each time that a payment is received by the supplier,
(b) each time that the supplier issues a VAT invoice, or
(c) where the services are services to which paragraph (2) below applies, to the extent that they have not already been treated as supplied by virtue of sub-paragraphs (a) and (b) above—
(i) if the services were performed on or after 9th December 1997 and before 9th June 1999, the day which falls eighteen months after the date on which those services were performed, or
(ii) if the services are performed on or after 9th June 1999, the day on which the services are performed.
(2) This paragraph applies if, at the time the services were, or as the case may require, are performed—
(a) it was, or as the case may require, is the intention or expectation of—
(i) the supplier, or
(ii) a person responsible for financing the supplier's cost of supplying the services or services together with goods,
that relevant land would, or as the case may require, will become (whether immediately or eventually) exempt land or, as the case may be, continue (for a period at least) to be such land, or
(b) the supplier had, or as the case may require, has received (and used in making his supply) any supply of services or of services together with goods the time of supply of which—
(i) was, or
(ii) but for the issue by the supplier of those services or services together with goods of a VAT invoice (other than one which has been paid in full), would have been,
determined by virtue of paragraph (1)(c) above.

36. VAT notice 700 at paragraph 14.2 1 in respect of basic tax points states that if you supply services then “the basic tax point is the date when the service is performed. It is normally taken as the date when all the work except invoicing is completed.”

The Appellant’s Submissions
37.	Mr Gibbon submitted that in accordance with Section 6(3) of VATA the time of supply of a supply of services is the time when the services are performed which in accordance with paragraph 14.2.1 of VAT Notice 700 is when the work is completed.
38.	As at the date of the revised planning permission on 29 May 2009 the work had not been completed and invoiced.
39.	Mr Gibbon submitted that accordingly, at the date of actual completion which was after 29 May 2009, being the time of supply for section 6(3) of VATA, the construction works had been carried out in accordance with statutory planning consent and satisfied the condition in Note 2(d) so that the building qualified as having been designed as a dwelling and the construction services were properly zero rated.
40.	Although HMRC had contended that the payments made by the Client established a series of tax points by virtue of section 6(4) of VATA as being payments in respect of those services Mr Gibbon submitted that the payments made were loans and not payments in respect of the construction services because the contract did not call for stage payments.
41.	Further HMRC had contended that, as the date of each tax point was prior to the revised planning permission, condition (d) of Note 2 was not satisfied and the construction services were not entitled to zero rating to the extent of the payments. Mr Gibbon however submitted that condition (d) had been satisfied before the time of supply which was the date of completion.
42.	Mr Gibbon contended that this analysis was supported by the fact that the legislation accepted that the time of supply of construction services will always be the date of completion of those services unless the contract provides for payments to be made “periodically or from time to time” in which case (and in which case only) tax points are imposed by Regulation 93 of the VAT Regulations 1995 whenever a payment is made or whenever an invoice is raised.
43.	 He submitted that as Regulation 93 provides for specific tax points where stage payments are made pursuant to contract, it follows that the law recognises that payments made otherwise than under such a contract will not be in respect of the construction services so that the payments will not establish tax points under Section 6(4) VATA otherwise there would have been no need to introduce specific tax points for such payments.
44.	He submitted that the time of supply occurred after the revised planning permission had been granted and that there were no grounds for imposing earlier tax points under Section 6(4) of VATA.
45.	He contended that accordingly the Appellant’s services were supplied in the course of the construction of a building designed as a dwelling and had been properly zero rated pursuant to Item 2 of Group 5 of Schedule 8 of VATA.
HMRC’s Submissions
46.	Mr Wastell submitted that the supplies of building services made by the Appellant during the relevant period covered by the assessment were standard rated.
47.	By Section 30 of VATA supplies of goods and services will be zero-rated if they are of a description specified in Schedule 8 of VATA.
48.	Group 5 of Schedule 8 deals with supplies in connection with, amongst other things, the construction of buildings. Item 2 of Group 5 provides inter alia that the supply in the course of the construction of a building designed as a dwelling of any services related to the construction (other than the services of architect surveyor or any person acting as a consultant or in a supervisory capacity) will be zero rated.
49.	The construction of a building for these purposes does not include the conversion, reconstruction or alteration of an existing building or any enlargement of or extension to, an existing building (note 16 to Group 5) and a building will only cease to be an existing building when demolished completely to ground level or the part remaining above ground level consists of no more than a simple façade as stipulated in Note 18 to Group 5.
50.	Whilst HMRC accepted the Appellant’s assertion that the original house was demolished entirely after the construction of the new house had started and that this was the construction of a building (and not works to an existing building) for the purposes of Notes 16 and 18, HMRC contended that whilst the Appellant’s supplies were made in the course of the construction of the building, the building was not “designed as a dwelling” for the purposes of Group 5 because not all of the conditions required by note 2 to Group 5 were satisfied at the time of the making of the supplies.
51.	Note 2 required that in order for a building to be “designed as a dwelling” four conditions (a) to (d) must be satisfied. Whilst it was accepted that conditions (a) to (c) had been met, condition (d) had not been met in this case.
52.	Condition (d) specified the requirement that “statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.
53.	The Appellant submitted that this condition had been met because it now had planning permission for the construction. Mr Wastell submitted that the Appellant accepted that the planning permission in place prior to 29 May 2009 (granted on 27 January 2005) was insufficient for the purposes of note 2(d) because it was for the “extensions and addition of a new floor” to an existing building. That permission did not cover the construction of a new dwelling. Planning permission to construct a new dwelling was only granted in May 2009.
54.	Although the planning permission included the word “retrospective” in Mr Wastell’s submission that did not mean that the planning permission took effect prior to 29 May 2009. HMRC did not accept that it would apply prior to 29 May 2009, rather on its face it appeared to be effective from that date but applied to the work previously carried out without permission. In order for the planning permission to take effect prior to 29 May 2009, the permission would have to be granted under section 73A of the Town and Country Planning Act 1990 and would have to specify its back dated or retrospective effective date in terms.
55.	Mr Wastell submitted that this was the same evidential position noted in the case of Watson v Commissioners, [2010] UKFTT 526 (TC) in which “retrospective” planning permission was granted on 31 January 2008 superseding earlier permission but it only took effect from that date. As in this matter there was no evidence that the planning permission had been expressly back dated to a time before the construction supplies in question.
56.	HMRC submitted that even retrospective planning permission in the sense of a backdated effective date could not possibly alter the VAT treatment of supplies of services made before the grant of that permission. Planning permission must be in place by the start of the construction works.
57.	Firstly the wording of note 2(d) makes clear that statutory planning consent must exist at or before the start of the construction works. It requires the existence of statutory planning consent in respect of the dwelling to which conditions (a), (b) and (c) of note 2 refer. However, the condition is that statutory planning consent “has been” granted and that the works must have been carried in accordance with that consent. The works will not be carried out in accordance with that consent if it did not exist at the time.
58.	Accordingly Mr Wastell submitted supplies of construction services made whilst there was no statutory planning consent in place cannot meet the requirements of note 2(d). On 29th May 2009 permission was granted for the demolition of the original house and erection of new dwelling. It cannot be said that the construction prior to that date had been carried out in accordance with that consent because it did not exist at the time.
59.	Mr Wastell said that this was the basis of the decision in Haigh v The Commissioners, Decision No. 20934, 21 Jan 2009 which concerned the requirement to have planning consent for alterations to listed buildings in order to qualify for zero-rating of the supply of building services in connection with those alterations under Group 6 of Schedule 8 of VATA. The Tribunal in that case held that planning consent must be granted before the works were undertaken and that an application for retrospective listed building consent was not possible.
60.	Mr Wastell submitted that this was also the basis of the decision in Michael James Watson v the Commissioners[2010] UKFTT 526 (TC) in which it was accepted that the consent must exist before the start of the construction works.
61.	Secondly the VAT treatment of supply of goods or services must be determined at the time of supply. There is no basis by which planning consent obtained after the supply can be applied retrospectively for VAT purposes. Section 1(2) of VATA provides that VAT on the supply of goods or services becomes due at the time of supply. By Section 6(3) of VATA, the basic time of supply of a service is when it was performed but payment prior to this date creates an earlier tax point as a result of Section 6(4). of VATA.
62.	 Accordingly assuming that HMRC is right and the Appellant is wrong and that the time of supply pre-dated 29 May 2009, VAT on the supply of the Appellant’s services became due at the date on which payment was received for those services. No planning consent was in place at that time and so those supplies could not be zero rated. There is no basis by which retrospective provision of planning consent many months later can alter the tax treatment of those supplies.
63.	Mr Wastell submitted that if the contrary were right then neither the taxpayer nor HMRC could be certain as to the correct treatment of supplies at the time at which VAT became due. By corollary when asking whether works constituted an enlargement of, extension to or annexe to an existing building for the purposes of note 16 to Schedule 8 the test question must be asked at the time of supply as confirmed by Lightman,J in Cantrell t/a Foxearth Lodge Nursing Home v The Commissioners.
64.	Mr Wastell submitted that this analysis was supported by the provisions of EC Directive 2006/112/EC. That provides that VAT becomes chargeable when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay (Article 62). In domestic law that is at the time of payment (Article 65) or invoice (Article 66) if earlier than performance and so HMRC were entitled to claim output tax at that time. Article 93 provides, inter alia, that the rate of VAT applicable should be determined at the times arising under Articles 65 and 66. On the basis that the time of supply pre-dated 29 May 2009, the rate of VAT applicable could only be the standard rate as there was no basis for zero rating the supplies.
65.	The Appellant had submitted that the monies paid over by the Client to the Appellant were loans to the Appellant and were not paid against any invoice or as stage payments against specific phases of the works. As a result it was claimed that the time of supply post-dated the granting of retrospective planning permission. Mr Wastell submitted however that there was no evidence that the amounts paid over during the relevant periods of the assessment 07/07 and 07/08 have ever, or will ever, be repaid. The total amount paid during that period was £230,000 out of £240,000 declared up to August 2008. No contract for repayment or for the building works had ever been produced. 
66.	Mr Wastell noted that the original claim that these were loans which was made in a letter dated 16th October 2008 had not been repeated in subsequent correspondence nor raised in the grounds of appeal.
67.	He said that the letter of 7 November 2008 seemed to accept that these were payments for the work but argued that they were ad hoc payments not requested by the Appellant. It now appeared to him that these payments were not to be repaid but in effect it had been argued that because they were ad hoc and not in response to invoices they could not form tax points for the purpose of determining the time of supply. 
68.	Thus, in the Appellant’s skeleton argument it was argued that these payments were not in respect of the construction services because the contract did not call for them and no invoice was raised. The Appellant relied on VAT Notice 700 and Regulation 93 of the VAT Regulations 1995 to support this analysis. 
69.	Mr Wastell submitted that these payments were clearly made in respect of or in consideration of the building services supplied and were accordingly tax points. The absence of a written contract or invoices to that effect  was not to the point. It had no bearing on whether or not they were loans and whether or not they were consideration for the services provided.
70.	The part of VAT Notice 700 relied on by the Appellant merely set out general information on basis tax points and stated that for suppliers of services the “basic” tax point for services is “normally” the date when all work is complete.
71.	Mr Wastell submitted that the relevant statutory provision was Section 6 of VATA. By Section 6(3), whilst the supply of services is treated as taking place at the time when they are performed, that is not the case where Section 6(4) applies. Section 6(4) applies when, inter alia, at a time before issuing the invoice the supplier receives payment in respect of supplies. In that case the supply is treated as having taken place at the time payment is received.
72.	If in the course of the supply of construction services the supplier receives payment in respect of those supplies that brings forward the tax point irrespective of whether or not the supplies of building services have been completed. That is the basic effect of section 6 of VATA. That was the accepted position in The Commissioners v Faith Construction Ltd and Others [1990] 1 QB 905.
73.	Mr Wastell said that in that case four construction companies received advanced payment for their services in an attempt to avoid the effects of a new law which would render their services standard and not zero-rated. The work was finished after the legislation came into force. The Court of Appeal considered the effect of the advanced payments in circumstances where the money was either subsequently loaned back to the client or where it was effectively held on account. Their Lordships accepted without hesitation that the provisions of the VAT Act dealing with the time of supply of services (then found in the VAT Act 1983) applied. The Commissioners were fixed with the tax treatment at the time of the advanced payment.
74.	The fact that the payments in this case were not apparently made under any written contract or pursuant to any invoices does not undermine the effect of the provisions of Section 6 of VATA. There is no basis for the Appellant’s submission that the time of supply of construction services will always be the date of completion of those services unless the contract provides for payments to be made periodically or from time to time. There is no need to be constrained in the analysis of time of supply by the provisions of Regulation 93 of the VAT Regulations.
75.	Mr Wastell submitted that even if there was a requirement for the payments to be made under contract, which it does not, there is no requirement for the contract to be written. The Tribunal should look at the circumstances of the payment. It is submitted that in this case these payments were clearly in consideration for the building services carried out. The Tribunal could infer that there must have been an oral contract or an implied term by the conduct of the parties.
76.	Mr Wastell concluded that in summary these payments must have been made in respect of the construction services provided and therefore the time of supply pre-dated the grant of retrospective planning permission and that in all the circumstances the appeal should be dismissed.

Findings
77.	We note that on the verification visit to the Appellant by HMRC Officer Sparkes on 14 July 2008, he was informed that the building work had been funded by the Client. He was told that the payments had been made to enable the Appellant to buy materials to further the building work and that the payments were loans from the Client which were to be repaid upon completion of the project and prior to a final account being drawn up. 
78.	We agree with Mr Wastell’s analysis as set out at paragraph 72 above that if in the course of the supply of construction services the supplier receives payment in respect of those supplies that brings forward the tax point irrespective of whether or not the supplies of building services have been completed. Section 6(4) of VATA applies when the supplier receives payment before issuing an invoice and fixes the time of supply as the time that the payment is received.
79.	We find that Mr Wastell’s analysis is supported by the Faith Construction case in which Parker L.J when referring to the equivalent section of the VAT Act 1983 stated that :
		“The purpose of the section is plainly to accelerate the date for the payment of tax. It is in the absence of a change in rating for the benefit of the revenue in that it will recover tax earlier”.
In the Faith Construction case payments were made to the builders in the form of loans in order to fix the rate of VAT to that which was current at the time of the loans and the Court of Appeal accepted this.
80.	We disagree with the Appellant’s contention that the loans were not payments in respect of the construction services because the contract did not call for stage payments and no invoices had been issued. We find that the payments were made in respect of the building services supplied and in any event no contract for repayment or the building works was produced.
81.	Whilst the Appellant relied on VAT Notice 700 and Regulation 93 of the VAT Regulations 1995 to support this analysis we agree with HMRC Notice 700 merely sets out general information on tax points.
82.	We find that at the time the loans were made statutory planning permission had not been granted for the construction of a new building and so the building did not qualify for zero rating at that time. Note 2 states that a building is considered to be designed as a dwelling provided that four conditions are met. Condition (d) of Note 2 is that “statutory planning consent has been granted in respect of that dwelling and its construction has been carried out in accordance with that consent”.
83.	In Haigh the Tribunal held that planning consent must be granted before the works are undertaken and that an application for retrospective listed building consent was not possible.
84.	Whilst the correct planning permission was obtained on 29 May 2009 and was retrospective we find that although the retrospection applies to the work carried out before 29 May 2009 it does not mean that the planning permission was effective before that date. In the case of Watson Judge Gort found that in order for the Appellant to succeed the relevant council would have needed to use its powers under Section 73A of the Town and Country Planning Act 1990 at the time it issued the retrospective planning consent to backdate the consent to a time before the work began.
85.	We find that there is no basis by which the retrospective provision of the planning consent many months after the Appellant had received payment for supplies can alter the tax treatment of those supplies. At the time the payments were received there had not been compliance with Condition (d) of Note 2 and thus the zero rating could not apply. When the supplier receives payment in respect of the supplies before issuing the invoice Section 6(4) of VATA applies and the supply is treated as taking place at the time the payment is received.
Decision
86.	The appeal is hereby dismissed and HMRC’s decision that the relevant building supplies should be standard rated is hereby confirmed.
87.	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.

S.M.G. RADFORD

TRIBUNAL JUDGE
RELEASE DATE: 2 March 2011