VAT – Zero rating – Annexe – Value Added Tax Act 1994 – Appellant building new building in grounds of existing cottage – new building comprising garage and workshop with guest accommodation above – Group 5 of Schedule 8 to 1994 Act – Whether supplies made in construction of new building zero-rated for VAT purpose as supplies made in course of construction of building designed as dwelling – Whether new building an “annexe” falling within exception in note 16(c) to Group 5 such that VAT chargeable at standard rate – Appeal dismissed
In 2010, the appellant obtained planning permission to construct a new building, described in the planning application as a “replacement garage/guest annex”, in the grounds of his existing cottage. The new building was constructed on the site of the appellant’s previous garage and was physically separate from the cottage. It comprised a ground-floor garage space with workshop, store room and utility room, with space and plumbing for a sink, washing machine and tumble dryer, and a lobby with stairs leading to first-floor guest accommodation with a toilet and shower room. The separate use or disposal of the new building was not prohibited either by the terms of the planning permission or any covenant affecting the property.
The appellant’s builders originally charged VAT at the zero rate on the construction on the new building, which was completed in 2011. In 2012, the respondents decided that the goods and services supplied in the course of the construction were chargeable to VAT at the standard rate. The appellant appealed, contending that those goods and services attracted zero rating, under item 2 in Group 5 of Schedule 8 to the Value Added Tax Act 1994, as supplies in the course of the construction of a building designed as a dwelling.
Rejecting that contention and dismissing the appeal, the first-tier tribunal (FTT) held that, although the new building was designed as a dwelling, it was an annexe to the cottage and therefore fell within the exception in note 16(c) to Group 5, to the effect that the “construction of a building” did not include the construction of an annexe to an existing building: see [2013] UKFTT 45 (TC). In reaching that conclusion, it took into account that the whole rationale for seeking planning permission for the new building had been the shortcomings of the existing cottage and the need to provide additional facilities in a new building, to be in common use and ownership. The appellant appealed.
Held: The appeal was dismissed.
(1) In cases where an examination of just the physical features of a new building did not lead to a clear conclusion on whether it was or was not was an annexe, a wider enquiry might be appropriate, taking into account matters other than just the physical characteristics and functionality of the building. Relevant matters included those that illuminated the potential for use inherent in the new building, namely the terms of planning permissions, the motives behind undertaking the works and the intended or subsequent actual use. Since the status of the appellant’s new building was not clear from its physical features, the FTT had been entitled, when deciding whether that building was an “annexe”, to take into account the terms of the written justification document submitted with the planning application. In doing so, it had properly considered evidence that was relevant to the issue of whether the new building was an adjunct or accessory to the cottage: Cantrell 9T/a Foxearth Lodge Nursing Home) v Customs and Excise Commissioners [2000] STC 100 distinguished; Cantrell 9T/a Foxearth Lodge Nursing Home) v Customs and Excise Commissioners (No 2) [2003] EWHC 404 (Ch); [2003] STC 486 considered.
(2) The FTT had been entitled to conclude that the new building was an annexe notwithstanding its finding that the building was designed as a dwelling within the meaning of note 2 to Group 5 of Schedule 8. The word “annexe” carried the connotation that, where there were two buildings, one was necessarily the adjunct or accessory to the other, principal building. One building could be an annexe to the other even though the two buildings had the same function, such as where both were dwellings. The appellant’s new building was clearly an adjunct or accessory to the cottage, notwithstanding that it was a building designed as a dwelling, because it created a garage and guest accommodation that was to be used with, or for the better enjoyment of, the cottage; in other words, it was a supplementary structure to the cottage: Cantrell (No 2) applied.
(3)| It followed that the FTT had applied the correct approach to determining whether the new building was an annexe and had reached a finding of fact on that issue that was in accordance with the evidence before it. On the basis of that finding, the FTT had been bound to find that the construction of the annexe was not the construction of a building for the purposes of Group 5 of Schedule 8 to the 1994 Act and was thus chargeable to VAT at the standard rate rather than the zero rate.
The appellant appeared in person; Amy Mannion (instructed by the legal department of HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
