Self-contained or not?

Could bed-sits qualify as dwellings?

The taxpayer bought a freehold office building with the intention of converting it to residential accommodation. It reclaimed the input tax it had to pay on the purchase price.

HMRC allowed the claim on the basis that the sale would be of a single unit and therefore zero rated under VATA 1994 Sch 8 group 5 item 1(b). The completed units comprised ten bedrooms for individual use as bedsits; four of them had an ensuite bathroom facility but the other six shared two communal bathrooms. There was no kitchen facility in the rooms but each room could be locked by the occupant.

However after further enquiries HMRC told the taxpayer that because the building has been converted for multiple occupancy it was an exempt supply and the input tax was not recoverable. The taxpayer appealed.

HMRC relied on its...