Whether supply in course of alteration, enlargement or extension of building — VAT Tribunal ruling in each case that new structure was separate building — High Court holding that in two cases supplies were zero-rated but in third they were standard-rated
These three appeals were heard together as they all raised the question whether construction work on buildings amounted variously to extension, enlargement, reconstruction or alteration of existing buildings with the result that supplies which would otherwise be zero-rated were standard-rated for VAT purposes.
In London Diocesan planning permission was obtained for building a new church to replace St Paul’s, Brentford, subject to the condition that the church tower was retained. The tower was to be kept physically separate from the new church and the works were carried out under three contracts: (1) to block off and repair the tower; (2) to construct the new church; and (3) to construct a new meeting hall. Customs held that apart from the meeting hall, which was zero-rated, the project was standard-rated as the “alteration or enlargement of an existing building” within note (9) to Group 8 of Schedule 5 to the VAT Act 1983. A VAT Tribunal allowed an appeal by the taxpayer in part in relation to the new church excluding that tower.
In Penwith the taxpayer had purchased a cottage comprising four walls, which were damaged and unsafe, a chimney and some roof timbers, but no roof. Part of the original structure was retained and incorporated into a new design covering twice the area of the old building. On completion the property was sold and input tax claimed on supplies. Customs refused a claim for input tax on the basis that the work constituted the reconstruction of an existing building.
In Elliott the taxpayers carried out construction work on a farmhouse to create a modern nursing home. There was access between the existing building and the new structure. Planning permission had been granted for the “extension of residential nursing home”. Customs claimed that the new structure was an enlargement of the existing building.
In each case a VAT Tribunal held that the new structure was a separate building and the supplies in question were zero-rated. Customs appealed.
Held The appeals in London Diocesan and Penwith were dismissed. The appeal in Elliott was allowed
1. The question for the tribunal was whether there had been conversion, reconstruction, alteration or enlargement of an existing building in the sense in which those words were commonly used or whether the end result was a new building. “Reconstruction” connoted replication of what once was, but was no longer, here.
2. In London Diocesan the tribunal had properly asked that question. In the end it was a question of fact and it was only open to the court to overturn the tribunal’s decision if no reasonable tribunal could have concluded on the evidence that the work was not that of alteration or enlargement of the old church. That was not the case and the appeal was dismissed.
3. In Penwith, although there were elements of replication, particularly in the external appearance of the building, the outside structure, the central core and the internal arrangements were completely different. It was well within the band of reasonableness to conclude that, considering the changes as a whole, the new house was not a reconstruction of the old. The appeal was dismissed.
4. In Elliott, once the tribunal found as fact that there was internal access between the new and the old buildings, the new building came within note (9) and was not zero-rated. The appeal was allowed.
Stephen Richards (instructed by the solicitor to Customs & Excise) appeared for the Commissioners; David Milne QC (instructed by Winckworth & Pemberton) appeared for the London Diocesan Fund; Mark Lomas (instructed by Reynolds Porter Chamberlain) appeared for Penwith Property Co Ltd; the taxpayers in Elliot did not appear and were not represented.
