VAT — Alterations — Value Added Tax Act 1983 Schedule 5, Group 8A — Grade II house damaged by fire — Whether an alteration or reconstruction
The subject
house is a Grade II listed building dating back to the mid-18th century. The
whole house was severely gutted by fire. It was rebuilt using, after repairs,
the outer walls. Alterations are zero rated for VAT purposes in relation to
certain listed buildings. The VAT Tribunal decided that there had been an
alteration for the purposes of Group 8A in Schedule 5 to the Value Added Tax
Act 1983. The commissioners appealed contending that the works amounted to
reconstruction and were, accordingly, standard rated. They also contended that
there was no building to be altered.
consider whether the supply was a supply in the course of reconstruction:
whether there was any building to be altered must be considered by a different
tribunal. It was open to the taxpayer to argue that the supply was zero rated
under items (1) or (2) of Group 8 in Schedule 5 to the 1983 Act.
The following
cases are referred to in this report.
ACT
Construction Ltd v Customs & Excise
Commissioners [1981] 1 WLR 1542; [1982] 1 All ER 84; [1982] STC 25, HL
Customs
& Excise Commissioners v Lewis [1994] STC
739
Parochial
Church Council of St Luke v Customs & Excise
Commissioners [1982] STC 856
This was an
appeal by the Commissioners of Customs & Excise from a decision of the VAT
Tribunal in relation to a supply.
Melanie Hall
(instructed by the solicitor to HM Customs) appeared for the appellant; the
respondent, Christopher R Moorish, did not appear and was not represented.
Giving
judgment, MOSES J said:
This is an appeal from the decision of Mr Palmer, chairman of the VAT Tribunal,
dated April 1 1997. The issue is whether the reconstruction, reinstatement or
rebuilding of a house severely gutted by fire can be described as alteration.
The chairman
recorded that the house, Fradd’s Meadow, is a Grade II listed building, which
dates back to the mid-18th century. He found as a fact that the condition of
the building was set out in a report of April 1993:
The whole of
the house has been severely gutted by fire. The damage includes the total
destruction of the roof, first floors, and internal timber partitions. Windows
have been generally destroyed and a number of the original timber lintels have
also been severely damaged. The enclosing stone walls have to be re-built in
part as a result of the damage to the lintels and of the loss of structural
strength caused by the heat of the fire in the north-east corner …
The
legislation relevant to this decision is set out in section 16(2) of the Value
Added Tax Act 1983. By that subsection supply of goods or services is zero
rated if the goods or services are of a description for the time being
specified in Schedule 5 to this Act or the supplies are of a description for
the time being so specified.
By Group 8 of
Schedule 5 it is provided, under the rubric ‘construction
of dwellings, etc’:
1. The grant
by a person constructing a building —
(a)
designed as a dwelling or number of dwellings; or
(b)
intended for use solely for a relevant residential purpose or a relevant
charitable purpose,
of a major
interest in, or in any part of, the building or its site.
2. The supply
in the course of the construction of —
(a) a
building designed as a dwelling …
3. The supply
to a person of —
(a)
materials; or
(b)
builders’ hardwear …
by a supplier
who also makes to the same person services within item 2 of this Group or Group
8A below of services which include the use of the materials or the instillation
of the articles.
Those items
are zero rated under Group 8. The relevant group under Schedule 5 in this case
is Group 8A, under the rubric ‘protected
buildings’:
1. The grant,
by a person substantially reconstructing a protected building, of a major
interest in, or in any part of, the building or its site.
2. The
supply, in the course of an approved alteration of a protecting building, of
any services other than the services of an architect, surveyor or any person
acting as consultant or in a supervisory capacity.
The notes to
those items are, by section 48(6), to be construed with these items:
(1)
‘Protected building’ means a building which is designed to remain as or become
a dwelling or number of dwellings or is intended for use solely for a relevant
residential purpose or a relevant charitable purpose after the reconstruction
or alteration and which, in either case, is —
(a) a
listed building …
(2) For the
purposes of item 1, a protected building shall not be regarded as substantially
reconstructed unless the reconstruction is such that at least one of the
following conditions is fulfilled when the reconstruction is completed —
(a)
that, of the works carried out to effect the reconstruction, at least
three-fifths measured by reference to cost, are of such a nature that the
supply of services (other than excluded services) materials and other items to
carry out the works, would, if supplied by a taxable person, be within either
item 2 of this Group or item 3 of Group 8 above, as it applies to a supply by a
person supplying services within item 2 of this Group; and
(b)
that the reconstructed building incorporates no more of the original building
(that is to say, the building as it was before the reconstruction began) than
the external walls, together with other external features of architectural or
historic interest;
and in
paragraph (a) above ‘excluded services’ means the services of an
architect, surveyor or other person acting as consultant or in a supervisory
capacity.
(3) ‘Approved
alteration’ means, —
(c) in
any other case, works of alteration which may not, or but for the existence of
a Crown interest or Duchy interest could not, be carried out unless authorised
under, or under any provision of, — …
and for which,
except in the case of a Crown interest or Duchy interest, consent has been
obtained under any provision of that Part;
and in
paragraph (c) above ‘Crown interest’ and ‘Duchy interest’ have the same
meaning as in section 50 of the said Act of 1979 …
(6) In item 2
‘alteration’ does not include repair or maintenance …
The chairman,
in a lucid and thoughtful decision in which he sought to construe the meaning
of ‘approved alteration’, concluded that there was an approved alteration where
the works, or any part of them, were made in a manner that affected the
character of Fradd’s Meadow as a building of special historic interest. He
reached that conclusion by reference to section 7 of the Planning (Listed
Buildings and Conservation Areas) Act 1990. In my judgment, there is no warrant
in Schedule 5 for such a construction.
Item 2 to
Group 8A requires three conditions if the supply is to be zero rated: (i) that
there should be an alteration; (ii) that the alteration is neither repair or
maintenance (the word ‘or’ to be read conjunctively); and (iii) that the
alteration be approved.
Item 3 to
Group A defines what is meant by ‘approved’. Under (c):
works of
alterations which may not … be carried out unless authorised under, or under
any provision of, —
(i) Part I of
the Planning (Listed Buildings and Conservation Areas) Act 1990 …
and for which
… consent has been obtained under any provision of that Part;
Thus, there
must both be authorisation, inter alia, under Part I, and consent. It is
important not to confuse that statutory definition of ‘approved’ with the
meaning of ‘alteration’. There is no statutory definition of what is meant by
‘alteration’ other than it does not include repair or maintenance.
What then is
alteration? In ACT Construction Ltd v Customs & Excise
Commissioners [1981] 1 WLR 1542 Lord Roskill said that the words in the
provisions should be given their ordinary meaning.
In a different
statutory context Lord Roskill decided that ‘alteration’ meant ‘structural
alteration’. I should emphasise the different statutory context in that case.
Their lordships’ house was dealing with Group 8 in Schedule 4 to the Finance
Act 1972 as amended by para 3 of the Value Added Tax (Consolidation) Order of
1976. Item 2 of the notes referred to ‘the supply in the course of the
construction, alteration or demolition of any building …’. Note 2 stated ‘Item
2 does not include, (a) any work of repair or maintenance’.
It will be
noted that under the statutory provisions the word ‘alteration’ found its place
between the words ‘construction’ and ‘demolition’. I need not finally decide in
the instant case whether, in the new statutory context, ‘alteration’ means
‘structural alteration’, but it probably does.
This case once
again illustrates the danger of using dicta in one case dealing with a
different statutory context in another where the words of the statute are not
the same.
Under the same
Act, Woolf J (as he then was) in Parochial Church Council of St Luke v Customs
& Excise Commissioners [1982] STC 856 had to consider a church that was
seriously damaged by fire, and whether work to reconstruct the roof amounted to
works of repair or maintenance. The case is authority for the following
propositions:
1. The
question will primarily depend upon what is happening to the building as a
whole: see p861(a).
2. The tax
treatment of items of work undertaken, which might be described as integral to
the whole of a larger project, will follow the tax treatment of that larger
product, thus if rooms are redecorated in the course of alteration of an
existing building, that redecoration will form part of the alteration: see
p861(j).
3. If a
building is extremely badly damaged, then the proper description of the work
may be rebuilding or reconstruction.
4.
Reconstruction may incorporate part of the old building. It is a matter of fact
and degree whether what is happening is repair of the old or construction of
the new: see p862.
Again, I
stress that the statutory context in that case was different. All Woolf J was
concerned with was the dichotomy between construction and alteration and repair
or maintenance, there was no tertium quid. Construction and alteration
were zero rated. Thus, he was able to identify the statutory purpose as:
New works
which are to be zero rated, and works which are designed to preserve or restore
what had previously existed which are to be standard-rated. (See p862(b) to
(c).)
In the light
of that statutory purpose, it made sense to consider the condition of the
church prior to the fire. In the instant case, however, the statute requires
consideration of three categories: reconstruction, alteration and repair or
maintenance. Only alteration is zero rated under Group 8A. That is demonstrated
by item (1) and note 2, which must be read together. Thus, the statutory
purpose is now different. The principles annunciated by Woolf J lead to the
opposite conclusion. If what is happening, viewed as a whole, is supply in the
course of rebuilding or reconstruction, then that is not alteration and it is
standard rated. The purpose of Group 8A is to exclude reconstruction, save
where it can be described as alteration that is not repair or maintenance. The
tribunal’s failure to consider whether the supply was a supply in the course of
reconstruction was an error of law.
The
commissioners contend that what was undertaken here was plainly reconstruction
and that, therefore, no remittal is necessary. They rely upon the findings of
the chairman at paras 51 and 52 of his decision. At para 51 he said:
Once again the
works described as ‘fire reinstatement work’ in Schedule I need more careful
consideration. Looking at the works as a whole I find that they cannot properly
be described as repair or maintenance. It is true that they put Fradd’s Meadow
back in some ways to the condition and appearance that it had before the fire.
But the degree of the necessary works following the fire were of such a
magnitude that I do not believe that anyone would normally say that they had
repaired the house, or repaired, for example, the roof. What Mr Morrish [sic]
[taxpayer] had done was to rebuild the house. I acknowledge that in many
instances the work done to rectify a fire will simply be categorised as repair
or maintenance. But here the degree of work necessary was so extensive and the
remains, other than damaged outer walls, so limited that to describe the works
as repair ignores the true nature and extent of what happened here.
Mr
Brendan-Cook used the expression ‘reinstatement’. There seems to me, accurate
as the use may be, an element of function of the works in such an expression.
The building was reinstated and reinstatement I would think could often include
mainly or only repair. But, in my judgment, what in fact happened here was, in
common language, that Fradd’s Meadow was rebuilt using, after repairing, the
outer walls.
52. I am
strengthened in my conclusion when I consider two of the most significant items
of work on their own. I appreciate that I am intended to consider the works as
a whole, but it is helpful, in my view, to test this by reference to the normal
description that would be applied to major items of the works. The stairs were
not repaired. After the fire they did not exist. They were rebuilt from
scratch. Similarly the roof was not repaired. It had been consumed in the fire,
fallen shattered to the ground or, such of it as remained, had to be
demolished. This seems to me a very different situation from the roof that was
repaired in Windflower Housing Association, where there was still a roof,
albeit very deficient.
I should
record in this case that the taxpayer did not attend because he had run out of
money. This matter was accordingly argued by the commissioners as a point of
principle. They contended that there were clear findings (which I have already
read in paras 51 and 52) that support the conclusion that the work was that of
reconstruction and not alteration.
The error, in
merely considering the dichotomy between alteration and repair and in failing
to consider whether there was any alteration at all, may well have been the
result of the way the case was argued before him by the commissioners, who, I
hasten to emphasise, were not at that stage represented by Miss Melanie Hall.
It seems clear to me that the taxpayer expects to have another go in the light
of my
the conclusion that, in the light of my findings as to the principle, it is
right to remit this matter to a different tribunal to make findings in
accordance with my judgment.
The second
element to the commissioners’ contentions is the contention that there was no
building to be altered.
In Customs
& Excise Commissioners v Lewis [1994] STC 739 Brooke J was
considering a derelict Sussex barn with four crumbling walls open to the sky;
there was no existing building. He was concerned with Group 8 of Schedule 5 to
the 1983 Act, and not with Group 8A.
By note 1(a)
to that group, ‘any reference in Item 2 or the following notes to the construction
of any building does not include a reference to, (a) the conversion,
reconstruction alteration or enlargement of any existing building’. The
commissioners contended in that case that this was reconstruction of an
existing building.
It will be noted
under Group 8 that the statute refers to an existing building. There is no such
reference under Group 8A, but I accept that one cannot alter something that
cannot be described as a protected building within the meaning of note 1. There
was, say the commissioners, no building here at all.
Because the
matter was not considered before the tribunal, I should not reach any final
conclusion as being the only true and reasonable conclusion in relation to that
second argument. That should be argued before the fresh tribunal.
The question
as to whether it is now open to the taxpayer, in the light of my enunciation of
the principles, to argue that, in any event, his case is covered by items (2)
and (3) in Group 8 and is therefore zero rated, has not been argued before me.
It is clearly
open to the taxpayer to argue that the supply is zero rated under Group 8. The
matter has not been argued before me because that question was not raised
before the tribunal; I merely mention that neither I nor the commissioners have
forgotten the fact that the end result may prove to be the same in the long
run, but I venture no suggestions or conclusions as to whether the taxpayer
will have a successful outcome.
Appeal
allowed.
