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Archdioce of Southwark Commission for Schools and Colleges v Customs and Excise [2004] UKVAT V18883 (30 December 2004)

18883

VALUE ADDED TAX – zero-rating – construction of new building contiguous to original building – agreed that the new building was intended for use solely for a relevant charitable purpose –whether new building was an enlargement of, or extension to, the original building – yes – whether the new building was an annexe to the original building – no – whether if the new building were an annexe to the original building it was capable of functioning independently from the original building – no – whether the main access to the annexe was via the original building – yes – appeal dismissed – VATA 1994 S 30 Sch 8 Grp 5 Item 2(a) Notes (16)(b) and (c) and (17)(a) and (b)

LONDON TRIBUNAL CENTRE

THE ARCHDIOCESE OF SOUTHWARK

COMMISSION FOR SCHOOLS AND COLLEGES

Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: DR A N BRICE (Chairman) MR JOHN N BROWN CBE FCA CTA FTII

Sitting in public in London on 3 and 4 November 2004

Mr P A C Rietchel FRICS for the Appellant

Ms Nicola Shaw of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The appeal

The Archdiocese of Southwark Commission for Schools and Colleges (the Appellant) appeals against a decision of Customs and Excise dated 5 December 2003. The decision was that supplies of certain building works made to the Appellant, which were carried out at St Benedict's School, Lordswood, Chatham, Kent, were standard-rated and not zero-rated supplies. The Appellant appealed because it was of the view that the supplies were zero-rated.

The legislation

Section 30 of the Value Added Tax Act 1994 (the 1994 Act) provides that a supply of goods or services is zero-rated if the goods or services are of a description for the time being specified in Schedule 8. Group 5 of Schedule 8 relates to the construction of buildings. Item 2(a) of Group 5 specifies:

"2 The supply in the course of the construction of:

(a) a building intended for use solely for a relevant charitable purpose ..

of any services relating to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity."

It was agreed that in this appeal the new building was intended for us solely for a relevant charitable purpose. The dispute centred round the meaning of the words "the construction of a building". These words are defined in Note (16) of Group 5 in the following way:

"(16) For the purpose of this Group, the construction of a building does not include-

(a) …

(b) any enlargement of, or extension to, an original building …; or

(c) subject to Note (17) below, the construction of an annexe to an original building."

Thus the effect of Note (16) is that zero-rating is not available for any enlargement of, or extension to, an original building nor is it generally available for the construction of an annexe to an original building. The cases where zero-rating is available for the construction of an annexe are described in Note (17) to Group 5 which provides:

"(17) Note 16(c) above shall not apply where the whole or part of an annexe is intended for use solely for a relevant charitable purpose and –

(a) the annexe is capable of functioning independently from the original building; and

(b) the only access, or where there is more than one means of access, the main access to:

(i) the annexe is not via the original building; and

(ii) the original building is not via the annexe."

Thus in this appeal the construction of an annexe may be zero-rated only if it is capable of functioning independently from the original building and if the main access to the annexe is not through the original building.

The issues

The Appellant argued that zero-rating should apply because the new building was an annexe to an original building which was capable of functioning independently of the original building and that the main access to the annexe was not through the original building. Customs and Excise argued that the new building was an enlargement of, or extension to, the original building within the meaning of Note (16) or, if the new building was an annexe to the original building, the annexe was not capable of functioning independently from the original building and that the main access to the annexe was through the original building.

Thus the issues for determination in the appeal were:

(1) whether the new building was an enlargement of, or extension to, the original building; or

(2) whether the new building was an annexe to the original building; and

(3) if the new building were an annexe, whether it was capable of functioning independently from the original building and whether the main access to the annexe was through the original building.

The evidence

A bundle of documents was produced by the parties. The bundle contained a number of maps. Oral evidence was given on behalf of the Appellant by Mr P A C Rietchel FRICS who also represented the Appellant at the hearing. On the afternoon of the first day of the hearing we attended a site visit at St Benedict's School and viewed the original building and the new building.

The facts

From the evidence before us we find the following facts

The Appellant is a charity and runs St Benedict's School which is a voluntary aided Roman Catholic primary school.

The original building

The plans we were shown did not indicate the position of north and so we describe the site and buildings on the basis that the north elevation was at the top of the plans we saw. The original building was shaped like a square without its top left (north/west) quarter. Those parts of the original building which were contiguous to the north and west boundaries of the site were very close to those boundaries. There is open ground to the south and the east of the original building and this contains paths, a playground and a grassed area.

The original building is a single-storey building which contained four classrooms; an infants' reception area; a library; an IT room; rooms for the head, the staff and the secretary; lavatories; a boiler room; and stores. There was a door between the IT room and the library which represented the only internal access to the library. There was also a large hall which was used for assembly and for the pupils to eat their lunch and the hall had an adjoining kitchen and servery.

.

On the grassed area, at a little distance from the original building, there was a temporary structure which contained two classrooms and lavatories. It was desired to re-house these two classrooms and lavatories inside a new permanent building.

The new building

We saw a copy of a planning permission dated 27 July 1998 which referred to the new building as an extension. We accept the evidence of Mr Rietchel that the new building was not built under that permission but that the planning permission which was used also referred to the new building as an extension.

The new building could have been built separately in the grounds of the original building. Also, it could possibly have been built as a separate building in the empty north/west quarter of the square of the original building. However, although possible, this would not have been easy because the space for building was restricted by the proximity of the north and west boundaries of the site. In fact, the new building was built within the empty north/west quarter of the square of the original building but it became part of the same building because there were two party walls (to the east and south of the new building) shared by both the original building and the new building.

When the new building was completed it housed two classrooms, some lavatories, a corridor which ran from west to east, and a boiler room. The corridor gave access to the new classrooms to the north and to the hall and the library in the original building to the south. To the east it gave access to the main corridor in the original building. To the west it contained an external door with a canopy and this door gave onto a path which ran along the western boundary of the site. The western boundary path was clearly not frequently used because on the day we made our site visit it was covered with leaves.

The new building was built on the same level as the original building. The architectural style of the new building is the same as that of the original building. The new building was designed to look like the original building and "squared off" the original building. It was a requirement of the planning permission that the bricks and roof materials of the new building matched those of the original building. Externally we found it very difficult to identify by sight alone where the new building joined the original building.

The arrangements for access

The arrangements for access are dictated by the need for security at the school. When the pupils arrive at school in the morning they enter through the main entrance which is at the south of the original building and then make their way to their classrooms through the internal corridors; this applies to the pupils whose classrooms are in the new building as well as to the pupils whose classrooms are in the original building. Each classroom, both in the new and the original building, has an external door leading onto a hard path which runs along the whole of the north and east sides of the whole building (which now includes both the existing building and the new building). These external doors are normally locked during the day but are used by the pupils to gain access to the playground during the day and to leave the school at the end of the school day.

The new building does not contain any provision for assembly, kitchens, eating areas, staff rooms, library or IT instruction. The pupils who occupy the classrooms in the new building require internal access to the original building where these facilities are housed. Such access is by internal doors and corridors. The eastern end of the corridor in the new building joins the western end of the main corridor in the original building and going east this corridor gives access to all the rooms in the original building and thus to the main access to the school. There are two internal doors which give internal access between the original building and the new building. These doors were previously in the north of the original building and were used as fire exits. Now they both give on to the main corridor in the new building. One gives internal access to and from the hall in the original building and the other gives internal access to and from the library in the original building. The main corridor in the new building also gives onto the new western external door which must also act as a fire exit to replace the two fire exits which are now internal to the joined buildings.

During the construction works the door from the IT room to the library was blocked up. This means that now the only internal access to and from the library for all those who use the school is through the door at the north of the original building which used to be a fire exit but which now gives internal access to the new corridor of the new building. In other words, anyone from the original building who wants to enter the library has to use the new corridor of the new building.

Reasons for decision

We consider separately the issues for determination in the appeal.

Issue (1) – Is the new building an enlargement or extension?

The first issue is whether the new building is an enlargement of, or extension to, the original building.

The principles to be applied in deciding whether construction works constitute an enlargement, extension or annexe to an original building were set out in Cantrell and another v Customs and Excise Commissioners [2000] STC 100 at paragraph [4] where Lightman J said:

"The two-stage test for determining whether the works carried out constituted an enlargement, extension or annexe to an existing building is well established. It requires an examination and comparison of the building as it was … before the works were carried out and the buildings or buildings as they will be after the works are completed; and the question then to be asked is whether the completed works amount to the enlargement of or the extension or the construction of an annexe to the original building. … First, the question is to be asked as at the date of the supply. … Secondly, the answer must be given after an objective examination of the physical characters of the building or buildings at the two points in time, having regard (inter alia) to similarities and differences in appearance, the layout, and how the building or buildings are equipped to function. The terms of the planning permissions, the motives behind undertaking the works and the intended or subsequent actual use are irrelevant, save possibly to illuminate the potentials for use inherent in the building or buildings."

Applying those principles to the facts of the present appeal we have already, in our findings of fact, examined and compared the original building and the new building. In order to decide whether the completed works amount to the enlargement of or the extension to the original building we now make an objective examination of the physical characters of the buildings before and after the works were completed having regard to all relevant factors, including similarities and differences in appearance, the layout, and how the building or buildings are equipped to function. We have not paid regard to the terms of the planning permissions, the motives behind undertaking the works or the intended or subsequent actual use of the buildings.

Beginning then with appearance we find that the original building and the new building are very similar in appearance so much so that it is difficult to identify by sight alone where the new building joins the original building. The layout of the original building and the new building together mean that they are interdependent. The internal points of access between the original building and the new building mean that the two buildings are now integrated into one whole. The pupils who occupy the classrooms in the new building have to use rooms in the original building for assembly, eating, use of the library or IT instruction and have to use the main corridor in the original building to access their classrooms in the morning. Also, the pupils in the original building can only gain access to the library through the corridor which is part of the new building. Thus the way in which the buildings are equipped to function indicate that the new building is an extension or enlargement of the original building. The construction work which produced the new building provided an additional section or area to the original building in its north/west corner which was previously empty.

In our view, therefore, the works amount to an enlargement of or extension to the original building. That conclusion means that the works are not zero-rated and that the appeal must be dismissed. However, in case we are wrong in that conclusion we have gone on to consider the other issues.

Issue (2) – Is the new building an annexe?

The second issue is whether the new building is an annexe to the original building.

In considering this issue we have been assisted by the judgment in Cantrell v Customs and Excise Commissioners (No 2) [2003] STC 486 where the meaning of the word "annexe" was considered.. At [17] Sir Andrew Morritt V-C stated that an annexe is an adjunct or accessory to something else. When used in relation to a building the word was referring to a supplementary structure, be it a room, a wing or a separate building. At [21] Sir Andrew considered contiguity, common ownership and inclusion in the building complex as a whole. We have also been assisted by the decision of the Tribunal in Bryan Thomas MacNamara v The Commissioners of Customs and Excise (1999) VAT Decision No. 16039. At paragraph 13 the Tribunal defined an annexe as "something that is adjoined but either not integrated with the existing building or of tenuous integration". At paragraph 17 the Tribunal remarked that the scheme of Note (16) implied that the works mentioned in each of sub-paragraphs (a), (b) and (c) are mutually exclusive. If the construction works produce an enlargement or extension of the original building the structure will not be an annexe.

Applying those principles we find that in the present appeal the new building was not an adjunct or accessory to the original building nor was it a supplementary structure. Not only was it contiguous to the original building but it was so joined to it, and integrated with it, that it became part of the original building. Not only was the new building fully integrated with the original building but also, in our view, because the new building is an extension to, or enlargement of, the original building it cannot be an annexe as well.

We conclude, therefore, that the new building was not an annexe to the original building. However, in case we are wrong in that conclusion we have gone to on decide whether, if the new building were an annexe, the conditions in Note (17) apply.

Issue (3) – Are the conditions in Note (17) complied with?

The third issue is whether the new building was capable of functioning independently from the original building and whether the main access to the annexe was through the original building.

In one sense it could be said that the new building is capable of functioning independently of the original building because the accommodation it contains used to be housed in a temporary structure which was separate from the original building. However, even then the children who occupied the temporary structure had to use the original building for eating and access to the staff rooms, the library and the IT room, and so to that extent the temporary structure did not function independently from the original building. As it now is, the new building is not capable of functioning independently from the original building because the pupils who occupy the new building have to use the original building for assembly, eating and access to the staff rooms, the library and the IT room and the pupils who occupy the original building have to use the new building to access the library.

Turning to the conditions about access we have already found that the main access to the new building is through the entrance to the south of the existing building. There is an access to the new building from the west but this is not used by the pupils either at the beginning of the day (when they use the main entrance to the original building) nor during or at the end of the day (when they use the doors which lead from the classrooms to the external pathways to the north and the east of both the new and the existing buildings) and so we find that the western entrance is not the main access.

We therefore conclude that the new building is not capable of functioning independently from the original building and that the main access to the annexe is through the original building. That means that the conditions in Note (17) are not complied with.

The Appellant's arguments

We have carefully considered the arguments for the Appellant. Mr Rietchel referred to Note (18) to Group 5 of Schedule 8 which provided that a building only ceased to be an original building if it were demolished completely to ground level or if the part remaining above ground level consisted of no more than a single façade or, where a corner site, a double façade, the retention of which was a condition or requirement of statutory planning consent. In this appeal he argued that there were two party walls which belonged to both the original building and the new building and so the original building did not cease to be the original building. We appreciate these arguments but the provisions at issue in this appeal are those in Notes (16) and (17) and not those in Note (18).

Mr Rietchel also relied upon the guidance in some Customs and Excise Notices. However, we have to reach our decision by applying the words of the legislation and the legal principles established by the higher courts to the facts of the appeal. The Notices contain the views of Customs and Excise which, on this subject, are not binding on the Tribunal. Mr Rietchel also mentioned some other new buildings with which he had been concerned which he said had been zero-rated as annexes. However, we have had to reach a decision in this appeal on the evidence before us relating to the new building at St Benedict's. Mr Rietchel argued that it was the intention of the legislation to assist charities and schools by not charging value added tax when connecting two buildings. However, we have had to apply the words of the legislation to the facts of the appeal following the principles established by the higher courts. Finally, Mr Rietchel sought to distinguish previous decisions of the Tribunal on the facts but we are not bound by previous decisions of the Tribunal although they may be persuasive.

Decision

Our decisions on the issues for determination in the appeal are:

(1) that the new building was an enlargement of, or extension to, the original building;

(2) that the new building was not an annexe to the original building; and

(3) that if the new building were an annexe, it was not capable of functioning independently from the original building but, even if it were, the main access to the annexe was through the original building.

That means that the appeal is dismissed.

The following Tribunal decisions were also mentioned at the hearing:

Colchester Sixth Form College v The Commissioners of Customs and Excise (1999) VAT Decision 16252

Thomas Rotherham College v The Commissioners of Customs and Excise (2002) VAT Decision 17841

DR A N BRICE

CHAIRMAN

RELEASE DATE: 30 December 2004

LON/2004/0013

22.12.04