Construction — Supply of building services and materials — Mental health care facility — Whether similar to hospital or prison for purposes of VAT rating — Appeal dismissed
The respondent civil engineering company constructed a building (the Dene) which, upon completion, was registered as a mental nursing home as defined by section 22 of the Registered Homes Act 1984.
The supply of services and building materials for the construction of a building that was intended to be used solely for a relevant residential purpose was zero-rated for VAT purposes under section 30 of, and items 2 and 4 Group 5 of Schedule 8 to the Value Added Tax Act 1994. This applied to a home providing residential accommodation for persons in need of personal care by reason of a mental disorder (note 4) but excluded accommodation to be used as a hospital, prison or similar institution. Accordingly, the respondent did not charge VAT on invoices totalling £5.4m in respect of the construction works.
Shareholders in the business referred the matter of the VAT exemption to the appellants for their “best judgment” as specified by section 73 of the 1994 Act. The appellants found that the building was not eligible for zero-rating because it was similar to a hospital or a prison. The respondents appealed that finding.
The VAT and Duties Tribunal allowed the respondent’s appeal and discharged the VAT assessment on the ground that the Dene was not a prison, hospital, or similar institution, because it cared for, rather than treated, patients. The appellant appealed.
Held: The appeal was dismissed.
The tribunal was correct to hold that the intended use of the Dene at the time of construction was not as a hospital, prison or similar institution.
The focus of note 4 was on the intended use of buildings for residential accommodation, as opposed to their short-term occupation. A hospital provided short-term accommodation for the purpose of the cure or amelioration of a medical condition, whereas the Dene provided long-term residence and personal care.
Furthermore, a prison or similar institution included a penal element. Although it was possible that some of the patients might have been convicted of offences, that was not a prerequisite for their admittance. The intended regime did not include any element of punishment or rehabilitation.
Nigel Poole (instructed by the legal department of Revenue & Customs) appeared for the appellants; David Milne QC and Andrew Hitchmough (instructed by Bryan & Armstrong) appeared for the respondent.
Eileen O’Grady, barrister
