The first case concerned overall eligibility for a DIY Reclaim. Whilst Mr & Mrs Treanor had been granted permission for a residential unit, it was limited to occupation and use with an adjoining workshop. Whilst the Tribunal sympathised with the Treanors, they found that HMRC were correct to reject the claim as being a ‘live-work’ unit and not passing the test of ‘being designed as a dwelling’.

In J Campbell, a restriction on occupancy by an employee was deemed to fail the ‘separate use or disposal test’. Whilst a general occupancy use is allowed, say ‘a person in agriculture’, a specific restriction means the separate use of the building is effectively caveated or prohibited and therefore not a dwelling in its true sense (for VAT). We have seen this before when dwellings are limited to holiday lets or ‘ancillary to’ a main house.

In Master Wishmakers, the construction of buildings on a ‘pirate island’ failed the zero rating criteria as Planning Consent contained the caveat that habitation of the buildings would require additional permission. Therefore whilst the buildings were (in part) ‘designed as dwellings’ at the time they were constructed, they could not be used as dwellings.

Another important aspect of this case is the need for a Contractor to have an ‘apportionment’ in order to zero rate invoices covering a wider range of works. This is effectively a pigeon-holing of costs into ‘eligible’ (lower rated) and ‘ineligible’ (standard rated) categories.

Whatever VAT rate may be applicable to a scheme, relief is a two stage process – proving eligibility and then determining to what extent the relief applies. Both stages must be completed properly before any lower rated invoices are contemplated.