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Cite as: [2003] UKVAT V18535

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Lordsregal Ltd v Customs & Excise [2003] UKVAT V18535 (19 September 2003)

VAT – zero rating – listed building – whether building as a matter of ordinary understanding "substantially reconstructed" within VATA 1994, Sch 8, Grp 6, item 1 – yes – whether further condition in Grp 6, Note (4)(a) satisfied – yes – appeal allowed

LONDON TRIBUNAL CENTRE

LORDSREGAL LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Malcolm Gammie Q.C. (Chairman)

Mr Michael Silbert FRICS

Sitting in public in London on 22nd and 30th July and 19th September 2003

Mr Richard Barlow of counsel, instructed by the VAT Consultancy for the Appellant

Mr Paul Harris of counsel, instructed by the Solicitor of Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

Introduction

This is an appeal by Lordsregal Limited ("the Appellant") against a decision of the Commissioners of Customs and Excise denying the application of the provisions of Group 6 of Schedule 8 to the Value Added Tax Act 1994 ("VATA") to work by the Appellant on the property at 75 Netherstreet, Bromham, Wiltshire ("the property"). The Appellant trades as a general builder involved in the speculative building of new houses as well as the purchase, repair and resale of existing buildings. The Appellant also repairs and renovates customers' properties. The Appellant is owned and managed by Mr Larby. The Appellant purchased the property with the intention of refurbishing and then selling it.
The Commissioners concluded that the work carried out by the Appellant on the property did not amount to a substantial reconstruction of the property. They took the view that the works amounted to repairs, alterations and improvements. They therefore considered that any future sale of the property would be exempt from VAT under Item 1 of Group 1 of Schedule 9 VATA. As a result, the Appellant was not entitled to deduct as input tax the tax incurred on the building work because it related to a future exempt supply. The Commissioners accordingly issued a notice of assessment for the period August 2000 in the sum of £1,053.02 relating to amounts wrongly treated as input tax on supplies of building work undertaken on the Property and an assessment for the period of October 2000 for £788.56 relating to amounts treated as input tax relating to the sale of the garden for building land, which should have been treated as an exempt supply of land.
The Appellant appealed, contending that any future sale of the property would be zero-rated as "the first grant by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site" within Item 1 of Group 6 of Schedule 8 VATA. As there was no dispute that the property was a protected building, the sole issue for our determination is whether or not the property had been "substantially reconstructed".
Apart from correspondence, the principal documents before us comprised plans of the property, a structural report by Mark Lovell Design Engineers together with further reports on the brick in-fill panels and roof of the property, photographs of the property before, during and after its refurbishment and copies of the planning consents granted by Kennet District Council. There were over 60 photographs illustrating all aspects of the works that had been done on the property. They allowed us to see exactly what Mr Lovell was describing in his reports and to appreciate the state of the property before anything was done to it and what was involved in the work undertaken by the Appellant. They also allowed the witnesses to explain more clearly what they were describing in their evidence. We heard evidence on behalf of the Appellant from Mr Richard Hart of Fourth Dimension Architectural Design, Mr Richard Bayliss, the Conservation Officer for the Kennett District Council, Mr Mark Lovell and Mr Terry Larby of the Appellant. We record below our findings based on the documents before us and on the evidence that we saw and heard.

The Facts
At the time of purchase the property was scarcely recognisable as a building, let alone as a dwelling that was still inhabited. It was entirely overgrown, to such an extent from the pictures we saw, that no part of its roof or chimneys was distinguishable as such and its doors and windows were scarcely visible. Structurally the property could well have been in danger of collapse in severe weather, although no doubt the overgrowth itself might have offered a degree of structural integrity. In short, it was a ruin, unfit for habitation despite the vendor remaining in occupation.
The Appellant's first step was to remove this overgrowth, revealing walls that had been entirely covered with a roughcast rendering. It was only when the rendering had been removed that the property was revealed as a timber framed house with brick in-fill panels part of which dated from mediaeval times. The Appellant engaged Richard Hart of Fourth Dimension Architectural Design to inspect the property and draw up plans to secure the necessary planning permission for the property's development. Mr Hart described the condition of the property as "terrible"; in one of the worst states that he could recall. Mr Lovell said that without intervention the building might have stood for another 5 to 10 years but a period of severe weather might well have brought it down at any time.
Despite this, the property was occupied by the vendor; more accurately, two rooms were occupied, namely the kitchen and an upstairs bedroom. In Mr Hart's opinion, however, the property was not fit for habitation. There were holes in the roof and the electricity (such as there was) was unsafe. Mr Larby said that he would not have kept an animal in the property. There was no sanitation apart from an outside toilet. There was no mains water (water being drawn from a well) and no main drainage. There was a freestanding cooker, which the vendor used to heat water for washing. He evidently never cooked a hot meal. The sole source of heat was a small open fire in the kitchen. There were fireplaces in other rooms but the rooms were boarded up and uninhabited. No light penetrated these rooms due to old curtains across the windows. This had at least ensured, however, that when ivy penetrated the building, as it freely did, it was unable to grow due to lack of light.
We describe in due course the work that was needed to create a residence fit for habitation. Mr Hart's immediate role, however, was to survey the Property and draw up the necessary plans for planning consents. As such his survey was not a structural survey but a measured survey of the external elevations and internal layout. Mr Hart took us through his two plans that were before us. The first was a drawing of the elevations and floor plan of the property on acquisition. The second was a drawing of the elevations and floor plan as they would be following the Appellant's work.
The property was a two-storey house. The south elevation comprised the front of the building with the front door at the centre. To the left, as one faced the front door, was a double window of the lounge and to the right a single window for the dining room. Above the lounge was another double window of a bedroom and above the front door a single window of another (smaller) bedroom over the hallway below. The large bedroom above the dining room had no window to the front elevation, so that the wall above the single dining room window was blank. Both the dining room and the large bedroom above had single windows on the east elevation of the property. The east elevation also revealed that behind the main sloped roof that covered the front of the property, there was a flat roof over a two-story extension that now formed the rear of the property behind the dining room. The room on the ground floor was described as a larder but it was nevertheless a room of approximately the same size as the large kitchen. The larder had a single window to the rear (north elevation) of the property. Above the larder (and under the flat roof) was another bedroom with a single window in the east elevation.
The kitchen was to the rear of the lounge under a separate sloped roof and with a single window to the west elevation but none to the rear. Above the kitchen was a room described as a bathroom, although this merely comprised a bath in the roof space above the kitchen. Outside the kitchen, attached to the west elevation of the property was an outside toilet. The larder extended further to the north than did the kitchen, so that the north elevation of the property was not a single wall but two separate extensions of different lengths. The rear door was inset between them at the centre of the property and outside the back door was a lean-to extension with a rear wall that was flush to the rear kitchen wall, with its own door and window and a separate sloping roof.
The hallway extended down the centre of the property from the front door to the rear door. The lounge and dining room opened into the hallway. The main staircase was accessed through the dining room and ran up between the dining room and the larder. There was a second staircase between the lounge and the kitchen. A chimney ran behind each staircase, the chimneystacks being on the east and west elevations of the building.
This was how the property stood at the time of purchase. Mr Hart's second plan reveals the alterations that were proposed to be made to the property. The lounge and dining room remained as they were save that some of the partition between the dining room and the hallway was removed to create an entrance of two door widths, similar to the existing doorway to the lounge. The dining room window to the front (south) elevation was increased from a single to a double window. In the lounge a new window was inserted in the west elevation. The large bedroom above the lounge was unaltered but the second staircase (between the lounge and the kitchen) was removed and an en-suite bathroom and toilet formed from the stairwell and the old bathroom (above the old kitchen). The bedroom above the front door and hallway was converted into a second bathroom and toilet and the bedroom above the dining room was divided into two bedrooms, with two new windows to the front of the property.
Finally, on the ground floor to the rear of the property, the kitchen became a study and the larder became the kitchen. The window in the study (ex-kitchen) to the west elevation was replaced by French windows. A new window was inserted in the new kitchen (ex-larder) in the east elevation of the property. The wall and rear door leading into the lean-to extension were removed to create a utility area with a new rear wall and door flush with the study (ex-kitchen) wall, where the lean-to had previously ended. The flat roof above the new kitchen and bedroom above was replaced with a sloped roof. The outside toilet was removed.
The previous paragraphs have described what changed in terms of the external appearance of the building and its internal layout. This, however, provides only a small insight to the building work that was needed to create a residence of the property from an effective ruin. The last major refurbishment had probably taken place in the late Georgian period and the building had had no maintenance carried out on it for perhaps as much as fifty years. The walls of the property were for the most part timber framed with brickwork in-fill panels. The timber frame on the east elevation had been undershot with brickwork to replace the rotten legs of the frame at ground level. Originally the building supported itself solely through the strength and stiffness of the timber frame. Over time the timber frame had been subject to decay and alteration. It nevertheless still had a good level of strength and stability but not enough to support the loads it was bearing without the in-fill brickwork panels, which provided shear plane stiffness.
Both internal and external timbers had suffered considerable damage from damp and deathwatch beetle in recent years. Some timbers were no more than wafer-thin skins, the interior of the wood having been entirely eaten out. In addition, the foundations of the building (such as they were) had settled in places and the wall plates had rotted. Most of the brick in-fill panels were not tied in to the neighbouring timbers and were in a fractured condition. The roof timbers had similarly been affected by water and plant ingress and were in a poor condition. The loft area has been boarded but the boards were rotten and the underlying ceiling structure was extensively damp. There was extensive decay especially where the roof had leaked for many years. The framing of the roof was not symmetrical from one hip to the other and the span direction of the ceiling joists changed from one end of the building to the other. The roof pitch had originally been steeper but at some time the trusses had been opened up by some 18 inches to lower the pitch, leading to some unusual structural results and the risk (when combined with the deterioration of the timbers) that the roof could easily become destabilised.
Mr Larby said that the first steps had been to strip the overgrowth, remove the roughcast render and then scaffold the house. The priority was to stabilise the building, which was in danger of collapse. The timber frame would sway if struck. To reduce the risk of collapse, the priority was to remove some 30 tons of stone tiling from the roof and to support the roof with 'acroprops' while the work on the rest of the building proceeded. The weight of the roof was pushing the walls out and it was only the brickwork panelling that was preventing a collapse. The sole plates to the walls were buckling and the eastern wall had been pushed out some four inches. The aim was to gut the building, to get it back to a stage where work could start. This involved removing as much weight as possible.
Once the roof had been exposed it was apparent that the front elevation had rotted out and that the ties were not supporting it. The priority was to reconstruct the roof to make it structurally sound. It was important to stabilise the roof as if the roof collapsed it would bring the entire building down with it. Apart from dealing with the existing roof, a new pitch roof was constructed over the original flat roof to match the existing. During the course of the work, the chimneys collapsed in part and had to be rebuilt.
Once the roof had been attended to, the walls were dealt with section by section. Rotten sections of the timber frame were "de-frazzed" or cut out and removed and new sections of oak installed where necessary. Every window was removed and replaced with oak windows to match the original style. The timber sole plates to the building were replaced in sections as necessary as work progressed around the building. The sole plates sat on foot deep brick or stone, which provided an insufficient foundation and proper foundations allowing for the spongy nature of the ground were therefore dug to support them. In addition, every brick in-fill panel was removed and rebuilt. The aim was to save as many of the original bricks as possible, possibly reversing them to expose the other face. In the event, however, a number of the brick panels were damaged in removing the roughcast rendering and others, due to the untied nature of the brickwork, fell out breaking bricks in the process. No damaged bricks were reused but replacements were imported from France.
The key objective in the reconstruction of the brick in-fill panels was to secure that the timber frame structure was free draining without the risk of any pockets or water traps so that the fabric of the building dried as quickly as possible. The construction therefore created a ventilated cavity to the rear of the panels so that with free air to the front of the wall the sections would dry out on both faces. There was a new internal timber skin to provide insulation and the panels incorporated a lead cill turned over at the edges to stop water tracking horizontally into the timbers. The brickwork panels were firmly tied to the timber frame with stainless steel frame ties screwed to the timber frame every fourth course.
Inside the building, the floors had become disconnected from the main frame of the house at joist level on the first floor and the timbers were rotten. The first floors were therefore totally removed and replaced, as also all internal stud walls and ceilings. Similarly, the ground floor timbers were rotten in both lounge and dining room and the flagstones in the old kitchen were weeping damp. The timbers were replaced and underfloor heating installed to avoid the use of modern radiators on the ground floor, which would otherwise affect the character of the building.
We have drawn our description of the property and the work involved from the documentary and oral evidence that we heard. Mr Harris for the Commissioners, in cross-examining the witnesses, sought to highlight three aspects of their evidence that would be relevant to our decision. First, Mr Harris put it to Mr Hart that Mr Hart had overstated matters when he said that the building had been "totally gutted" or that certain areas had been "totally demolished". Second, he pressed Mr Lovell to accept that Mr Lovell was ready to adopt whatever description of the work best suited the circumstances. Thus, when listed building consent was needed, Mr Lovell had described the work to the local planning authority largely in terms of "repair". When the VAT consequences of the work were in issue, Mr Lovell was quite prepared to give evidence that the work amounted to a reconstruction. Third, Mr Harris cross-examined Mr Bayliss (the Kennett District Council Conservation Officer) on what aspects of the work might or might not come within the specific terms of the listed building consents and whether there had been any final inspection to confirm that the work was fully in compliance with the consents that had been granted. In addition, Mr Harris asked the witnesses in relation to a variety of items of the work whether they thought it right to describe the particular item as a work of repair or of alteration or reconstruction.
Mr Hart in his evidence said that in his opinion the building had been totally gutted prior to work taking place and in certain areas the building had been completely demolished and rebuilt in traditional materials and craftsmanship. Mr Harris suggested to Mr Hart that he was overstating matters. Mr Hart disagreed and we accept that he was not overstating matters. Mr Hart did accept that the house had not been extended nor had there been any major additions, such as a swimming pool. He agreed that the building comprised essentially the same elements as before, albeit entirely renewed, with some internal reorganisation, the insertion of some new windows and doors and a new sloping roof to replace the previous flat one.
Mr Lovell accepted that his reports were written almost exclusively to refer to "repair" rather than "reconstruction. He said that this reflected the sensitivities of local conservation officers when considering whether to allow particular work on listed buildings. In cross-examination Mr Harris suggested to Mr Lovell that his evidence could not be relied upon given that it appeared that he was prepared to shade the truth of the matter and to allow an inaccurate impression to be created, given that he was now claiming that what he formerly described as repairs in fact amounted to reconstruction. Mr Lovell strongly rejected this and, we think, rightly so. He said it was quite accurate to describe particular items of work as repairs given that, from a listed building perspective, the objective was always to preserve as much of the listed building as possible. He said that in ordinary parlance rebuilding a wall might be characterised as repair: it was repair by rebuilding. He pointed to the chimneys that had collapsed and therefore had to be repaired by being rebuilt. In his view the progressive repair of a building to maintain its integrity as a listed building could well reach the point where anyone would recognise that the aggregate of the repair work amounted to a reconstruction. He thought that in common parlance the two expressions could be used interchangeably in appropriate cases, and this was an appropriate case.
In his evidence-in-chief Mr Bayliss confirmed that he had visited the property on five or six occasions, both to answer specific questions about the work and to satisfy his own curiosity on its progress. He confirmed that from what he could see the work was being carried out in accordance with the listed building consents but said that the final inspection of the work was not his responsibility from a listed building perspective but was the responsibility of those concerned with building control. He said that there was no formal listed building inspection to check that the work was in accordance with the consent. So far as he was concerned the work for which listed building consent had been given did amount to a substantial reconstruction of the property. It involved stripping the roof and undertaking substantial repairs that required large sections of new timber, ceilings and joists, renewing the brickwork and replacing large sections of the timber frame. In effect, he said, the building had to be taken apart and put together again. He said that as conservation officer he would seek to retain as much of the original building as possible but the building was in such a poor state of repair that a large amount of it had to be replaced. It involved repairing the building as a whole coupled with 'preventive maintenance' work, i.e. work that is designed to avoid or reduce for the future the problems of maintaining the building.
In cross-examination by Mr Harris, Mr Bayliss acknowledged that he did not check what work had been done in accordance with the list building consents or whether any of the work fell outside or was not in accordance with those consents. Consideration of that would only arise if something came to light that might require enforcement action. He did not go through each item of work with a fine toothcomb to check that it complied with the consents. He said nevertheless that in his view the work did comply with the consents although he accepted that it was not possible to relate every item of work for which costs had been incurred to a particular element of work as specified in the consents.

The statutory provisions
Under Group 6 of Schedule 8 VATA, zero-rating is available in respect of the following supplies—

"GROUP 6—PROTECTED BUILDINGS

Item No

1 The first 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 protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity.

3 The supply of building materials to a person to whom the supplier is supplying services within item 2 of this Group which include the incorporation of the materials into the building (or its site) in question."
The Commissioners do not dispute that the property is a "protected building within the meaning of Note (1) to Group 6. In relation to Item 1, Note (4) states that—

"(4) 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 or item 3 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.
In the context of the property, Note (6) defines an "approved alteration" as—

"... 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—

(i) Part I of the Planning (Listed Buildings and Conservation Areas) Act 1990,

(ii) Part I of the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997,

(iii) Part V of the Planning (Northern Ireland) Order 1991,

(iv) Part I of the Ancient Monuments and Archaeological Areas Act 1979,

and for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of that Part,

but does not include any works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs, or maintenance work."
Note (9) states that where a service is supplied in part in relation to an approved alteration of a building and in part for other purposes, an apportionment may be made to determine the extent to which the supply is to be treated as falling within Item 2. Note (10) provides for the purposes of Item 2 that the construction of a building separate from, but in the curtilage of, a protected building does not constitute an alteration of the protected building.
Note (3) to Group 6 incorporates certain provisions of Group 5 of Schedule 8 including the definition of "building materials". "Building materials", in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description, (or its site). It does not include—

(a) finished or prefabricated furniture, other than furniture designed to be fitted in kitchens;

(b) materials for the construction of fitted furniture, other than kitchen furniture;

(c) electrical or gas appliances, unless the appliance is an appliance which is—

(i) designed to heat space or water (or both) or to provide ventilation, air cooling, air purification, or dust extraction; or

(ii) intended for use in a building designed as a number of dwellings and is a door-entry system, a waste disposal unit or a machine for compacting waste; or

(iii) a burglar alarm, a fire alarm, or fire safety equipment or designed solely for the purpose of enabling aid to be summoned in an emergency; or

(iv) a lift or hoist;

(d) carpets or carpeting material.

For these purposes the incorporation of goods in a building includes their installation as fittings.

The Appellants' Contentions
Mr Barlow for the Appellants submitted that the legal requirements for zero-rating were that—

•    there was a reconstruction of the building

•    it must be substantial

•    60 per cent of the cost of the work carried out to effect the reconstruction must be of services or goods that would have fallen within Items 2 and 3 of Group 6 if supplied to the Appellant

•    the works must have been in the course of an approved alteration, and

•    the works must have been other than repair or maintenance (or alterations incidental thereto)
Mr Barlow noted that the sole issue for our determination was whether the property had been "substantially reconstructed" for the purposes of item 1 of Group 6. In relation to the relevant statutory requirements, Mr Barlow said that Note (4) of Group 6 did not define substantial reconstruction as such. It imposed two conditions, one of which must be satisfied before the 'reconstruction' could be regarded as substantial reconstruction. Mr Barlow accepted that Note (4)(b) did not apply in this case because, although the property had been "gutted" in the ordinary everyday sense of that term, in its reconstructed state it incorporated more than the external walls and external features of architectural and historic interest. The relevant condition was therefore that specified in Note (4)(a).
In relation to this condition, Mr Barlow submitted that it did not require that the Appellant should actually have bought the services and ancillary supplies of goods from third parties. Where the person making the Item 1 supply had done the work, the condition would be satisfied if the works were of the type referred to in Items 2 and 3 if they had been supplied to the person concerned by a taxable person.
In relation to Item 2, he noted that the services must be "in the course of an approved alteration". He said that it was unclear from their case whether the Commissioners were seeking to challenge the requirement for approval but submitted that the works did satisfy this requirement. In particular, he submitted that the phrase "in the course of" indicated that it was wrong to look at each item of work in isolation and ask if it was approved. Provided that an item of work is part of the work required to effect the approved alteration, looking at each item in isolation was unnecessary.
With those requirements in mind, Mr Barlow submitted that in this case—

•    the scale of the works carried out make it clear that there was a reconstruction of the building

•    in normal cases where the building as a whole has been reconstructed that is likely to be substantial reconstruction and on the facts this was the case for the property

•    well over 60 per cent of the costs fell within Items 2 or 3

•    at least 60 per cent of the work was in the course of an approved alteration whether looked at in isolation or in the manner referred to above

•    the expression "repair or maintenance" is a composite phrase to which the rule of interpretation noscitur a sociis applies, each of those words takes its meaning from the fact that both appear together, and in context that means that works are not repair and maintenance just because the building was in a dilapidated state before work started

•    the purpose of the legislation is to encourage the preservation of listed buildings and it would be an attempt to achieve the opposite if repair and maintenance were to be interpreted to the effect that works going well beyond the normal meaning of those words fell within that phrase, which Mr Barlow suggested was what the Commissioners were contending for.

The Commissioners' Contentions
Mr Harris for the Commissioners submitted that "substantial reconstruction" involved a two-staged analysis. First, one needed to ask whether, as a matter of ordinary, sensible use of language (if needs be using a dictionary definition) there has been a "reconstruction". It is only if there has on that basis been a reconstruction that one goes on to consider whether or not that reconstruction was 'substantial', by reference to the tests set out in Note (4). Mr Harris noted that in this case we were only concerned with the test in (4)(a) since Mr Barlow had disavowed any reliance on the test in (4)(b).
Mr Harris submitted that on an ordinary sensible interpretation of the word "reconstruction", there had been no such reconstruction on the facts of this case. While there had been a great deal of repair and maintenance, sometimes amounting to substantial repair and maintenance, and quite a few approved alterations, the totality of these works simply did not amount to a reconstruction of the house. The house remained fundamentally the same after the works as before – it was in the same location; the external walls were the same size and in the same positions; the external doors were in the same locations; the roof was in the same place and of the same design and shape, save for one small section; and the internal walls and rooms were all in the same places, save only for some relatively minor differences in the downstairs hallway and stairwells and to create more partitioning upstairs. The whole purpose of the works had been to restore the house to its former glory.
To support what he said was an ordinary sensible interpretation of the word "reconstruction", Mr Harris referred us to a number of dictionary definitions of "maintenance", "reconstruction", "repair" and "restoration". He acknowledged that the restored house was very impressive and beautiful and that Mr Larby had expended a great deal of love, attention to detail and resources on it. None of this, however, changed what was a restoration into a reconstruction. The very essence of the work was to make the finished house as close as possible to how it was before the works. Moreover, the intention and practice was to use as much of the existing fabric and materials as were, safely and properly, capable of being used. Mr Harris noted that Mr Lovell's reports never once used the word "reconstruction" but the phrase "repair" appeared on countless occasions, and his evidence, describing different elements of the work involved, had reinforced the impression that this was a work of repair not of reconstruction. Furthermore, Mr Harris said that there was clear inconsistency in Mr Lovell insisting before us that we should interpret his constant references to repair and maintenance as meaning reconstruction when the impression he was seeking to create for planning purposes was that of repair and not reconstruction.
If, however, the Commissioners were wrong and the house had been reconstructed, Mr Harris submitted that there had been no substantial reconstruction by reference to Note (4)(a). He submitted that there were five key matters that the Appellant must overcome if it were to succeed under the so-called 60:40 test in Note (4)(a). It must demonstrate that the works that it seeks to categorise as being within the 60 per cent (the numerator):

(a) are not repairs and maintenance (see the final sentence of Note 6)

(b) are not alterations that are incidental to repairs and maintenance (see the final sentence of Note 6)

(c) are not excluded from the definitions of Items 2 and 3 of Group 6 because of the definitions of those terms (e.g. the "services of an architect, surveyor, etc.," are excluded by definition – see Item 2)

(d) are alterations carried out to the fabric of the protected building itself, so that a whole swathe of costs (for example on garden works) were nothing to do with the building, and

(e) are approved, in that they are covered by the listed building consent.
In the light of these requirements Mr Harris submitted that the Appellant had manifestly failed to show that it met the 60:40 test and he submitted various schedules of figures to support that conclusion. The figures in the Commissioners' schedule re-analysed figures previously supplied by the Appellant to the Commissioners and we deal further with these figures below.
In the course of his submissions Mr Harris referred us to some eleven cases, which he said shed light on the statutory provisions with which we are concerned. These were Barraclough (Tribunal Decision No 2529), Nigel Church (Tribunal Decision No 12427), Vivodean (Tribunal Decision No 6538), Viva Gas Appliances [1983] STC 819, ACT Construction [1982] STC 25; Windflower Housing Association [1995] STC 860, Cheeseman (VAT Tribunal Decision No 5133), Longmoor (Tribunal Decision No 14733), St Petroc Minor (Tribunal Decision No 16450), NDF Browne (Tribunal Decision No 11388), Wells (Tribunal Decision No 15169). We refer to these (and Mr Barlow's reply on them) as necessary in our conclusions.

Conclusions

Was the property "substantially reconstructed" in the normal everyday meaning of those words?
In Barraclough (Tribunal Decision No 2529), the Tribunal considered the expression "substantially reconstructing a protected building" in the context of previous legislation to similar effect. As regards the interpretation of the relevant provisions it said that—

"In our judgement, the sale by Mr Barraclough of 9 Friday Street was a taxable supply if, but only if, he had 'substantially reconstructed' that building following his purchase thereof. In this regard we agree with the argument advanced by [the Commissioners] that, to establish the required proposition, Mr Barraclough must show both that the building was 'reconstructed' in common parlance and that the reconstruction was 'substantial' under the provisions of the Notes to Group 8A aforesaid. In our opinion, the Group impliedly contrasts 'reconstructing' in Item 1 of Group 8A with 'alteration' in Item 2 thereof. Note (2) is expressed to relate to item 1. On that basis we take the view that we should first consider whether the works done by Mr Barraclough did effect a reconstruction of the building. We are of the opinion that, giving the word 'reconstruction' its normal everyday meaning, he did not do so. Those works amounted to a minor enlargement of the building and a modernisation of its interior."
Mr Barlow submitted that to the extent that Barraclough might suggest that the 60:40 test (which we consider below) answers whether reconstruction is substantial, that would be to misinterpret the statutory provisions. The conditions in Note (4) were not meant to define substantial reconstruction as such. We did not understand Mr Harris to argue otherwise on this point. In any event, it seems to us that the question posed by Item 1 is straightforward (even if it may not always be easy to answer) and, in this respect, we would construe the words "substantially reconstructing" together according to their ordinary everyday meaning. The question posed by Item 1 is whether the person in question is substantially reconstructing the building and while that necessitates a view as to what amounts reconstruction (contrasting that as necessary with 'in the course of approved alteration' within item 2), it does not involve ignoring the word "substantially" in arriving at a conclusion as to whether what was done in the particular case amounted in ordinary parlance to substantial reconstruction.
Was the property substantially reconstructed? From the evidence we heard and saw we have no doubt that the property was substantially reconstructed within the ordinary everyday meaning of that expression. It may always be possible to describe particular items of work comprised within a larger project as works of repair when looked at individually but if one stands back and looks at the property as a whole and what was done to it, we find it impossible to describe it as amounting to no more than a work of repair or restoration.
If we look at the factors to which Mr Harris points, it is true that the external walls and internal layout were the same and that there were no significant additions to the building. But we do not think that it is a requirement for there to be 'reconstruction' that there should be such changes. Certainly Note 4(b) contemplates cases in which the external walls remain to define the extent of the reconstructed building and we do not believe that Note 4(b) represents the only circumstances in which the retention of the external walls amounts to reconstruction (in its ordinary meaning). We also do not agree with Mr Harris' description of the building as being substantially the same after the works as before. It is not clear whether, if ever, the building had compared with what Mr Larby's work produced. Even allowing for the standards of different generations and centuries, we doubt that the property had ever been of a glory (to take Mr Harris' reference to restoring the building to its "former glory") to match that produced by Mr Larby.
When the Appellant bought the property it was, in effect a ruin that required rebuilding, preserving what could be preserved and re-using what materials could be reused. In relation to the work that its state necessitated, drawing a line between works of "reconstruction", "restoration", "repair" and "maintenance", and what each of these expressions portends, may not be easy, as many cases illustrate (including those to which our attention was drawn). Often which expression is used will reflect whether one is referring to distinct parts of the building (as Mr Lovell was usually doing in writing his reports) or to a larger part of the building or the building as a whole. Thus, in the context of a building that has a roof at the outset, it may be perfectly correct to refer to a repair of one element of the roof structure. That is not to say, however, either that the roof as a whole was not altered or that the roof works were not an element of the reconstruction of the building.
The question we have to answer for the purposes of Item 1 of Group 6 is whether the Appellant was substantially reconstructing a protected building. We doubt if anything we can say will cast any more light than previous cases on how to answer the statutory question as a general matter. Each case is one of impression based on the evidence and the overwhelming impression that we have gained from the evidence that we have seen and heard is that the property in this case was substantially reconstructed. It may not have been demolished as such and then rebuilt reusing as much of the materials as could be salvaged. Instead, the property was through a painstaking process largely taken down section-by-section and rebuilt with whatever of the original materials could be re-used. In doing this, the aim was not (as Mr Harris suggested it was) to produce a finished house as close as possible to what it was before the works. Obviously the work had to preserve the character of the building as a listed building. Thus, the timber frame of the building was always in situ as the skeleton of the entity under reconstruction. As to the type of building that emerged, there was no true comparison between what was there before and after.
We are reinforced in our conclusion by comparing what was done to this property with what was done in some of the cases to which we were referred. In this case, the works on the property went well beyond what was involved in, for example, Barraclough (Tribunal Decision No 2529).

Is the condition in Note (4)(a) satisfied?
This does not, however, suffice to secure zero-rating because, as the Appellant accepts, the building is not to be regarded as substantially reconstructed for the purposes of Item 1 of Group 6 unless one of the Note (4) conditions is satisfied. In this case it can only be paragraph (a) of Note (4). This turns on whether the Appellant has met the 60:40 test.
In our view, the 60:40 test requires us to identify the works involved in reconstructing the building and then to ask whether at least three-fifths of those works (by cost) involved supplies falling within either Item 2 or Item 3 of Group 6. Identifying the works involved in reconstructing the building does not present significant problems. The more difficult issue is how we should characterise the (actual or notional) supplies to effect those works, bearing in mind that the works in aggregate amount to substantial reconstruction (rather than approved alteration as such) and that to the extent that reconstruction involved alteration, works of repair or maintenance and alterations incidental to repair or maintenance are excluded from approved alterations.
The analysis of the figures that Mr Harris for the Commissioners produced showed the cost of approved alterations as £36,490.33 plus 50 per cent of the cost of items that were attributable partly to approved alterations and partly to other (non-qualifying) matters. This produces a total cost of approved alterations of £86,143.02 against a total cost of the works of £193,994.21. There is a further amount of £44,434.57 attributable to the cost of excluded items. As on that basis the cost of approved alterations represents only 44.40 per cent of the total non-excluded costs, the Commissioners say that the Appellant does not satisfied Note (4)(a).
In reply Mr Barlow took immediate issue with the way in which the Commissioners had categorised certain items on their list. If we reallocate each of the items to which Mr Barlow drew our attention, the cost of approved alterations in the Commissioners' analysis becomes £89,833.84 plus 50 per cent of £80,171.28, giving a total figure of £129,919.48 against total costs of £209,376.45 and excluded costs of £29,052.33. This leaves the apportionment of mixed costs on an unaltered 50:50 basis but we think a better basis would be to apportion them according to the respective proportions of the expenditure on qualifying and non-qualifying costs. With a 50:50 split, however, the costs attributed to approved alterations amounts to 62.05% of the total non-excluded costs.
The Commissioners' figures are drawn from earlier schedules produced by the Appellant. These categorised particular costs in a way that resulted in qualifying expenditure of between 72 per cent and 98 per cent. When the figures are examined more closely, the competing Schedules reveal a great deal of disagreement between the parties over how different work should be characterised – whether as repairs or as approved alterations. The Appellant's different analyses of the costs in particular reveal changes of mind over how particular costs should be characterised. There are items that the Appellant has always characterised as repairs and there are other items that the Commissioners have always accepted as approved alterations.
In our view the changes of mind by the Appellant on how to characterise particular items of work and the costs related to them reflects the Appellant's uncertainty as to what the test in Note (4)(a) requires. We have not therefore regarded the Appellant as having conceded that particular items were repairs or maintenance (and not alterations). However, even if we do regard the Appellant as having conceded certain items in the schedules as being repairs, the Appellant has never conceded so much as to reduce the qualifying items below 60 per cent of the total relevant costs.
We have therefore approached the schedules of costs afresh to determine whether at least 60 per cent of the costs of the reconstruction work in this case was attributable to services or materials or other items (notionally) supplied in the course of approved alterations, not being repair or maintenance or alterations incidental thereto.
In doing so, we think that the Commissioners are in effect inviting us to go through the schedules item by item and to answer the question – alteration or repair – in each and every case and in isolation from everything else. Thus, in relation to each item we should decide whether the supply of that item amounted to an alteration and, if so, whether it was specifically authorised in the listed building consents, or whether the supply amounted to repair or maintenance or an alteration incidental thereto? In reaching our determination we would then be guided by how the witnesses described the item in question when asked by Mr Harris whether that item in isolation amounted to repair, alteration or reconstruction. And to the extent that that evidence does not supply the answer, because the burden of proof for each item is on the Appellant, we must in effect find in the Commissioners' favour for any item which the Commissioners have not conceded to be an approved alteration and on which we do not have any evidence to prove that it was such an alteration.
Obviously, in arriving at our determination we may be able to group certain items together – for example, costs that relate to the roof – but even that does not necessarily answer the matter in the way in which the Commissioners seem to want us to approach it. As we have noted, it would not be a misuse of language to say that some elements of the roof were 'repaired', in the sense that individual timbers were repaired for re-use. But other elements were entirely rebuilt where rotted timbers afforded no other option and part of the roof was altered (by installing a pitched rather than a flat roof). Does Note (4)(a) require us to look at the roof as a whole or at the individual elements of it, down to each and every rafter? Should we take each individual brick panel and assess whether it incorporated the original bricks or new French bricks? Do we have to consider each and every element of the internal work to decide whether it amounted in isolation from everything else to repair or maintenance or alteration (other than alteration incidental to repair or maintenance)?
In our view the statutory language does not require the sort of analysis for which the Commissioners contend. The statute does not require one to ask whether the relevant supplies (broken down into their every element) amounted to an alteration or repair or maintenance. The supplies must be "in the course of an approved alteration of a protected building" and we consider that this requires a broader perspective than that of taking each and every item of work in isolation from everything else and seeking to categorise it accordingly. The broader perspective for which Mr Barlow contends is more in keeping with what the statute requires. Note (4)(a) requires us to determine the nature of the supplies that comprised the works of reconstruction and whether they would have fallen within Items 2 and 3 of Group 6. On that basis we think that the great majority of the supplies involved did do so and approaching the supplies from this broader perspective seems more consistent with the type of approach adopted by the Court of Justice in cases such as Card Protection Plan Ltd v Commissioners of Customs and Excise [1999] STC 270 (see at paragraphs 27 to 31), in determining the nature of supplies and whether there is a single supply or mixed supplies.
In support of the broader perspective Mr Barlow took us to what had been said in ACT Construction v Commissioners of Customs and Excise [1982] STC 25 (in particular the speech of Lord Roskill at 28g to 29d) and Commissioners of Customs and Excise v Windflower Housing Association [1995] STC 860 (at page 865e) about the expression "repair or maintenance". While these cases assist, ultimately we must address the statutory question in the context of the particular facts of this case. Having regard to the evidence, we think that supplies comprising the works of reconstruction, if supplied to the Appellant as Note (4)(a) requires, would have been very largely supplies that fell within Items 2 and 3 and certainly as the Appellant contends to an extent that exceeds 60 per cent of the relevant costs involved as shown in the schedules. As a particular illustration, the supplies comprising the work on the roof in our view amounted to supplies in the course of an approved alteration even though a number of individual elements of that work might be described as repairs to particular parts of the roof and its timbers.
As to whether the works were authorised or not, we accept Mr Bayliss' evidence that they were. No one (and, in particular, neither Mr Bayliss nor the local authority) has suggested otherwise. It cannot be necessary for taxpayers to claim zero-rating to have show that each and every item of work is specifically mentioned or described in the consent before it can be regarded as authorised under Group 6. We think that it must suffice that it falls within the parameters of what the consent envisages and allows and in this case the work to the building as a whole was what was consented to.
We therefore allow the Appellant's appeal. The Appellant is also entitled to its costs. We therefore order that the Commissioners should pay the Appellant's costs of and incidental to and consequent upon the appeal, to be taxed on the standard basis in default of agreement.

MALCOLM GAMMIE QC
CHAIRMAN

RELEASED:

LON/01/1243