Tax tribunals deal with some very unusual cases, but few can have been stranger than that concerning VAT liabilities in respect of a ‘pirate island’, built on a former gravel pit in rural England for the private enjoyment of a wealthy family.
The artificial island was constructed at a cost of over £1 million and was complete with its own skeleton cage, waterfall and five buildings – bearing such names as ‘The Black Doubloon’ and ‘Lubbers Locker’. It was intended solely for private recreational use and its construction and artistry were described as exceptional.
However, after the island’s completion, the company that designed and built it received a demand for more than £75,000 from HM Revenue and Customs (HMRC) on the basis that it should have accounted for VAT on its services. The company, however, argued that one of the buildings on the island – ‘Coffers Cabin’ – was exempt from VAT in that it had been designed as a dwelling.
In rejecting the company’s appeal, however, the First-tier Tribunal (FTT) noted that the island had been constructed without planning permission, although consent had later been retrospectively granted. The relevant VAT exemption thus did not apply. HMRC had also pointed out that the planning permission stated that the island as a whole was not intended to be used for full-time habitation.