VAT – Construction of building – Value Added Tax Ac 1994 – Appellants issuing VAT assessment on respondent’s works to develop nursing home on site of redundant church – Works incorporating existing church building and adding new wings – Whether works zero-rated for VAT as “construction of a building” within item 2 of Group 5 to 1994 Act – Whether excluded as being “enlargement or extension” within note 16(b) to Group 5 – First-tier tribunal holding that works zero-rated – Appeal dismissed
The respondent supplied construction services in connection with the development of a nursing home on the site of a redundant church. The works retained the structure of the church as the centrepiece of the nursing home, containing its main entrance and reception area, while also adding three new wings of accommodation plus kitchen and staff facilities. The respondent treated the supplies as zero-rated supplies made in the course of construction of a building designed for a relevant residential purpose within item 2 of Group 5 of Schedule 8 to the Value Added Tax Act 1994. The appellants subsequently assessed the respondent to VAT on the basis that the works involved not the construction of a building but merely the enlargement or extension of an existing building, within the exclusion in note 16(b) to Group 5, such that they did not attract zero-rating and were chargeable to VAT at the reduced rate of 5%.
The first-tier tribunal (FTT) allowed the respondent’s appeal against that decision. It found that the works involved the construction of a building and were not excluded as either a “conversion” within note 16(a) to Group 5 or an enlargement or extension within note 16(b). In reaching that conclusion, it took into account that the original church structure was dwarfed by the new additions and found that the works had created a single, fully functioning nursing home which, as a matter of size, shape, function and character, was different from the original church.
The appellants appealed. They contended that the works were properly characterised as an enlargement or extension; alternatively, even if they were not an enlargement or extension, they still did not attract zero-rating under item 2 of Group 5 since they had not involved the construction of an entirely new building but had incorporated the existing church.
Held: The appeal was dismissed.
(1) The FTT had been entitled to conclude that the building work carried out by the respondent to create the nursing home was the construction of a building for the purposes of item 2 of Group 5. The phrase “construction of a building” should not be interpreted for that purpose as applying only to the erection of a wholly new building, so as to exclude a building that incorporated a pre-existing structure: Customs and Excise Commissioners v London Diocesan Fund [1993] STC 369; [1993] EGCS 67 applied; Commissioners of HM Customs and Excise v Viva Gas Appliances Ltd [1983] STC 819 distinguished. Whether certain works were the construction of a building, as opposed to the construction of something else, was a question of fact for the FTT to determine, subject to the exceptions in note 16. The FTT had properly found that the construction of a building was capable of including the construction of a new building or buildings connected to and incorporating the church.
That conclusion was supported by a consideration of note 16(b) to Group 5, which, so far as it created exceptions to item 2, was predicated on the assumption that the matters there dealt with would otherwise be capable of being the “construction of a dwelling”. The exclusion of any enlargement or extension, save where it created an additional dwelling or dwellings, assumed that an enlargement or extension that did create such additional dwellings was otherwise capable of being the construction of a building within item 2.
(2) The FTT had been entitled to find that the works carried out by the respondent were not an “enlargement or extension” excluded from item 2 by virtue of note 16(b). Whether the building work was an enlargement or extension to an existing building was a question of fact, degree and impression. The introduction of note 18 to Group 5, providing that a building only ceased to be an existing building when demolished completely to the ground, had not made the “fact and degree” test irrelevant for the purposes of note 16. Note 18 defined when a structure ceased to be an existing building it did not say what was, or was not, an enlargement or extension. It did not have the effect that all work, not matter how extensive, done on the site of a building that was not completely demolished to ground level had to be regarded as an enlargement or extension. The FTT had properly concluded that, in light of the size, shape, function and character of the new work, the completed building was so different from the pre-existing church that it could not be said to constitute an enlargement or extension of the church. Applying the same test, the FTT had likewise been entitled to conclude that the works were not a “conversion” within note 16(a): Customs and Excise Commissioners v Marchday Holdings Ltd [1997] STC 272; [1996] EGCS 204 and Cantrell (t/a Foxearth Lodge Nursing Home) v Customs and Excise Commissioners (No 1) [2000] STC 100 and (No 2) [2003] EWHC 404 (Ch); [2003] STC 486 applied.
Eleni Mitrophanous (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Timothy Brown (instructed by Essential VAT Services) appeared for the respondent.
Sally Dobson, barrister
