Listed building severely damaged by fire – Builder carrying out works on building – Whether works “approved alteration” of protected building and zero rated – Item 2 of Group 8A to Value Added Tax Act 1983 – VAT Tribunal finding works zero rated – High Court allowing appeal
In March 1993 Fradd’s Meadow, St Tudy, Cornwall, which was a three-bedroom Grade II listed building, was severely damaged by fire. Authorisation for works of reinstatement was given on September 13 1993. The respondent, a builder, demolished and removed most of the remaining internal structure of the building, rebuilt the house with specific alterations using the outer walls and added a ground-floor extension. In his VAT returns covering the works, the respondent calculated his VAT liability on the basis that only the cost of building the extension was liable to VAT at the standard rate, and he treated the rest of the works as zero rated. On assessing the taxpayer the Truro local VAT office considered that the works were too substantial to be described as repair and maintenance and allowed only part of the works as zero rated. Item 2 of Group 8A to the Value Added Tax Act 1983 (now item 2 of Group 6 in Part II of Schedule 8 to the Value Added Tax Act 1994) zero rates “the supply, in the course of an approved alteration of a protected building, of any services “. Under note 3 to item 2 “approved alteration” meant works of alteration which could not be carried out unless authorised under the Planning (Listed Buildings and Conservation Areas) Act 1990. Note 6 provided that in item 2 “‘alteration’ does not include repair or maintenance; and where any work consists partly of an approved alteration and partly of other work, an apportionment shall be made to determine the supply which falls within item 2”. The commissioners argued that much of the works and in particular the work to the roof, was repair or maintenance for which the zero rate could not be claimed. The respondent argued that none of the works could be described as repair or maintenance and therefore all the works were zero rated. The tribunal referred to section 7 of the 1990 Act and found that save for the relatively small part of the works, the goods and services were supplied in the course of an approved alteration of a protected building and accordingly attracted zero rate. The commissioners appealed against the decision of the tribunal on the basis that the chairman’s construction of the expression of “approved alteration” was wrong in law and that the court should identify the correct construction and remit it back to a differently constituted tribunal for rehearing.
Held The appeal was allowed.
The tribunal had erred in reaching its conclusion by reference to section 7 of the 1990 Act. It was important not to confuse the statutory definition of “approved” with the meaning of “alteration”. There was no statutory definition of alteration other than that it did not include repair or maintenance which was demonstrated by item 1 and note 2 and they had to be read together. The purpose of Group 8A was to exclude reconstruction, save where it could be described as alteration which was not repair or maintenance. The tribunal had merely considered the dichotomy between alteration and repair and had not considered whether the works were alterations at all and therefore its conclusion had been wrong.
Melanie Hall (instructed by the solicitor to HM Customs) appeared for the commissioners; the taxpayer did not appear and was not represented.