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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> University of St Andrews v Revenue and Customs [2005] UKVAT V19054 (09 May 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19054.html
Cite as: [2005] UKVAT V19054
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19054
Value Added Tax Zero rating in respect of buildings constructed for a relevant residential purpose Facilities Building built together with Student Halls of Residence Facilities including a common room, shop and bar whether invoices for construction of whole building or parts thereof qualifying for zero-rating VATA 1994, Schedule 8, Group 5, and Note 10 thereto Appeal partially successful.
EDINBURGH TRIBUNAL CENTRE
UNIVERSITY COURT OF THE UNIVERSITY OF ST ANDREWS Appellant
- and -
Tribunal: (Chairman): Mr Kenneth Mure, QC
(Member): Mr K Pritchard, OBE., BL., WS
for the Appellant Mr Bill Saunders, Messrs Baker Tilly
for the Respondents Miss Gillian Carty, Shepherd & Wedderburn, WS
© CROWN COPYRIGHT 2005.
Introduction
In this Appeal the Appellant was represented by Mr Bill Saunders. The Respondents were represented by Miss Gillian Carty.
The Appeal concerns the extent to which zero-rating should apply in respect of the cost of construction work in completing a Facilities Building which was built together with 12 accommodation blocks for students attending the University. This development is situated about 1 mile from the centre of St Andrews and the main University Buildings. The Facilities Building includes a gym, music room, kitchen and dining room, conference room, projection room, and also a bar, shop and common room. The purpose of the Facilities Building is to meet the social needs of students residing on the development.
In terms of Group 5 of Schedule 8 of the VATA 1994 zero-rating applies to the construction of buildings used solely for a relevant residential (or charitable) purpose. This includes, for instance, residential accommodation for students.
The issue in this Appeal is whether this test is satisfied in relation to certain parts of the Facilities Building with the result that supplies relating thereto are zero-rated. This involves the correct interpretation of Note 10 to Group 5 viz, whether in the case of a part of a building having "mixed" use (i.e. partly for a relevant residential purpose and partly not) there can be an apportionment of the relative invoices between zero and standard rating.
The Legislation
This Appeal proceeds in terms of Section 83(b) VATA 1994 which provides that an appeal lies to the Tribunal with respect to inter alia the VAT chargeable on the supply of any goods or services. (Customarily in such circumstances an appeal would proceed at the instance of the builder or other supplier issuing invoices, but the competence of this appeal at the instance of the recipient client is not challenged).
Section 30(2) of the Act provides for the zero-rating of supplies of goods or services falling within the categories specified in Schedule 8. Group 5 Item 2(a) therein includes supplies " . in the course of the construction of (a) a building designed as a dwelling intended for use solely for a relevant residential purpose ".
Note (4)(d) provides that a relevant residential purpose extends to "residential accommodation for students or school pupils".
Note (5) provides that
"Where a number of buildings are
(a) constructed at the same time and on the same site; and
(b) are intended to be used together as a unit solely for a relevant residential purpose;
then each of those buildings, to the extent that they would not be so regarded but for this Note, are to be treated as intended for use solely for a relevant residential purpose".
Of particular importance in this Appeal are the terms of Note (10) which provides:
"Where
(a) part of a building that is constructed is designed as a dwelling or number of dwellings or is intended for use solely for a relevant residential purpose or relevant charitable purpose (and part is not); or
(b) part of a building that is converted is designed as a dwelling or number of dwellings or is used solely for a relevant residential purpose (and part is not)-
then in the case of-
(i) a grant or other supply relating only to the part so designed or intended for that use (or its site) shall be treated as relating to a building so designed or intended for such use;
(ii) a grant or other supply relating only to the part neither so designed nor intended for such use (or its site) shall not be so treated; and
(iii) any other grant or other supply relating to, or to any part of, the building (or its site), an apportionment shall be made to determine the extent to which it is to be so treated".
We were not referred to any case-law which assists in the interpretation of Note (10).
The Facts
Parties negotiated a Statement of Agreed Facts relating to the VAT treatment of supplies relative to different parts of the Facilities Building. This Statement is produced. In terms of paragraph 5(a) thereof certain parts are to be regarded as qualifying for zero-rating. Paragraph 5(b) provides that certain other parts are not be so regarded and accordingly are to be standard-rated. Paragraph 5(c) provides that in respect of certain further parts there should be an apportionment between zero and standard rating to reflect "mixed" use i.e. partly for a relevant residential purpose and partly not. (This proceeds on the basis of a Concession allowed by the Respondents, which is explained further in the summary of the Respondents' submissions).
Early in the course of the Hearing Miss Carty indicated that Parties had agreed further that the reference to the "office" (Room no 124 being the kitchen chef's office) included in Paragraph 6 of the Statement of Agreed Facts should be deleted therein and included instead in Paragraph 5(a) as qualifying for zero-rating.
Accordingly the 11 items remaining in Paragraph 6 represent the disputed items in this appeal.
In addition to the Statement of Agreed Facts we heard evidence briefly on these 11 items remaining in Paragraph 6 from Mr Roger Smith, an official of the University. We found his evidence entirely credible (indeed it was not controversial) and on the basis of it we make the following further Findings of Fact, viz:
(i) The cleaning material store is a provision for the entire building, containing cleaning materials for use throughout.
(ii) Corridor no. 138 enables deliveries from the rear access to the kitchen, cleaning store, bar store, and shop.
(iii) Corridor no. 139 allows students access to the music room and gym.
(iv) The staff room and staff changing rooms are a facility for all staff working in the building including, for example, kitchen and bar staff.
(v) The toilets (nos. 117, 118 and 120) were required by Building Regulations and Disability Discrimination legislation. These are intended for the students' use. The staff have their own separate toilet facilities.
(vi) The cleaning room is to service the toilets and all public areas of the building.
(vii) The office and reception areas are for the purpose of administration of the whole building. There all student enquiries would be dealt with and repairs to all parts of the building would be managed from there.
(viii) The lobby areas (nos. 101, 102 and 109) provide entry and access to the building. The main lobby (102) provides access from the main concourse to the shop, bar and common room.
(ix) The first aid room is the only such provision in the building, intended primarily for students but also providing an emergency service for others including visitors, in the building.
(x) The cloakroom is a facility intended for students and anyone else using the building.
Mr Smith referred to Document 98 as being a floor plan showing the controversial areas.
Submissions for the Respondents
By agreement Miss Carty addressed us first. She produced also a written summary of her argument for reference.
She indicated that by concession, use of university buildings in periods falling outwith the academic term was not taken into consideration in relation to zero-rating classification. Secondly, again by way of concession, the Respondents allow an apportionment of expenses beyond what they regard as the correct statutory interpretation in relation to certain structural works relating to both parts of a building qualifying for zero rating by virtue of their having a "relevant residential purpose", and other parts. This is reflected in Paragraph 5(c) of the Statement of Agreed Facts in terms of which an apportionment has been agreed in respect of the roof, foundations, plumbing and wiring. This practice is set out in the Respondents' Guide, Notice 708, Section 15.
Miss Carty submitted that the exercise of the Respondents' discretion in relation to the concession was not subject to review by the Tribunal.
It was not disputed that the Facilities Building (potentially) satisfied the test of "relevant residential purpose": Note (4)(d). It was part of a development of residential accommodation for students and constructed at the same time for purposes of Note (5).
Miss Carty addressed us at length on the application of Note (10). She stressed the significance of "solely" in paragraph (a). A single supply to qualify for zero-rating had to satisfy the "relevant residential purpose" test. Provision for the music room, dining area and kitchen satisfied that use, and invoices for construction work relating to those parts qualified for zero-rating in terms of paragraph (i). Such parts as did not, eg shop and bar areas, should not qualify for zero-rating and the relative invoices should be standard rated: paragraph (ii). Paragraph (iii) allowed an apportionment of a multiple supply such as an invoice in respect of a part satisfying the "relevant residential purpose" test and another part not. The portion relating to the qualifying part would qualify for zero-rating. However, paragraph (iii) did not, Miss Carty argued, permit an apportioning of any invoice relating to a mixed area, satisfying the "relevant residential purpose" test in respect of only part of its use. Hence, expenditure on a staff area for kitchen staff but also bar or shop staff, could not be apportioned to allow zero-rating in part.
Having regard to the Statement of Agreed Facts Paragraphs 5(a) and (b) reflected paragraphs (i) and (ii) of Note (10). Paragraph 5(c), however, did not reflect paragraph (iii) of Note (10). The agreement to apportion invoices relating to the roof, foundations, plumbing and wiring, reflected the concession noted earlier. It was not open to the Tribunal, Miss Carty submitted, to extend that concession to other works on the Facilities Building. She submitted, therefore, that the Appeal which related to the remaining items in Paragraph 6 of the Statement of Agreed Facts fell to be standard rated and, accordingly, the Appeal should be refused.
Submissions for the Appellant
Mr Saunders invited us to extend the apportionment agreed in respect of the items in Paragraph 5(c) of the Statement of Agreed Facts to the remaining items in Paragraph 6. While he accepted that the bar and shop areas fell to be standard rated, "mixed use" areas of the Building were distinct and, he argued, expenditure on these should be apportioned between zero and standard rating in terms of Note (10) para (iii).
Mr Saunders explained that the Appellant was assessed to VAT under a partial exemption method. This restricted the opportunity to recover input tax. He noted the concession operated by the Respondents in terms of their Guide no. 708. The apportionment allowed there and reflected in Paragraph 5(c) of the Statement of Agreed Facts should logically be extended to all common parts of the Building which enabled it to function. He invited us to compare the apportionment allowed under Note (11) to Group 5. He argued that this supported his submission.
Had the Appellant provided the bar, shop and common room areas together in a separate building, then the whole construction costs in respect of the principal Facilities Building housing the kitchen and dining areas, the gym and music room, would have been zero-rated. There was an obvious illogicality in the construction of 2 buildings achieving a more tax-efficient result. Further, paragraph 17 of the Respondents' Skeleton Argument mooting an apportionment under Note (10) (iii) in the case of a roof sheltering a single storey building was unrealistic in the context of payment for major constructional works. These customarily involved monthly valuations and interim payments.
Crucially, Mr Saunders argued, the areas remaining in Paragraph 6 were all common areas and logically should be treated for apportionment purposes similarly to the areas itemised in Paragraph 5(c).
Decision
The matter for our determination is whether any of the 11 items remaining in Paragraph 6 of the Statement of Agreed Facts qualifies for zero-rating (in whole or in part) as being designed or intended for a "relevant residential purpose". While the nature of each of these items falls to be considered there is the further complication of ascertaining the correct interpretation of Note (10) to Item 5 of Schedule 8 VATA 1994. Does it permit a degree of zero-rating in respect of "mixed" expenditure on part of a building used both for "relevant residential" and other purposes?
In our view zero-rating extends in terms of Note (10) to only parts or areas of a building which are intended "solely" for a "relevant residential purpose". We consider that an interpretation allowing a partial zero-rating in respect of parts or areas having a "mixed" rather than an exclusively residential use is inconsistent with the correct reading of this provision.
Note (10) permits zero-rating in relation to a part of a building as if it were an entirety provided that that part is designed or intended "solely" for a relevant residential (or charitable) purpose. Paragraph (i) then provides that a supply in respect of that part "only" qualifies as if a building for zero-rating. In our view the words solely and only stress an exclusive qualifying use in relation to the entire part. Paragraph (ii) then excludes from zero-rating invoices relating to part of a building not having such exclusive use. Paragraph (iii) then provides that in respect of " any other grant or other supply relating to, or to any part of, the building (or its site), an apportionment shall be made to determine the extent to which it is to be so treated".
Our interpretation of paragraph (iii) is that it does not disturb the effect of paragraphs (i) or (ii) but rather enables an apportionment or division to be made of an invoice attributing a portion to a qualifying part which would then benefit for zero-rating. Hence in the circumstances of the present case an invoice for the kitchen (qualifying) and the bar or shop (non-qualifying) could be apportioned so that the share relating to the kitchen would fall to be zero-rated. This interpretation respects the stress of the words solely and only. Paragraph (iii) does not in our view have the effect of extending zero-rating to expenditure on "mixed" areas used jointly for qualifying residential purposes and other non-qualifying purposes.
We agree with Miss Carty that this Tribunal cannot review the discretion of the Respondents in relation to the exercise of the concession reflected in Paragraph 5(c) of the Statement of Agreed Facts.
We now have to review each of the remaining disputed items in Paragraph 6 of the Statement of Agreed Facts in relation to our interpretation of Note (10). We found the evidence of Mr Smith helpful here and we consider that in addition to the Office (no. 124) used by the chef, 3 other areas qualify for zero-rating as having been designed or intended for use solely for a relevant residential purpose. Reference may helpfully be made to the plan, Document no. 98, also.
Firstly, it appears that the Corridor Area (no. 139) represents the means of access for students using the Music Room and Gym. (These, of course, are by agreement to be zero-rated). We consider that this area satisfies the rules prescribed in Note (10) and relative constructional work falls to be zero-rated.
Secondly, we consider that the Toilets (nos. 117, 118 and 120) qualify for zero-rating. Significantly the staff have their own separate facilities and these toilets are provided for the students. Moreover, this provision was required by building regulations and in the case of no. 120 a special facility required by Disability Discrimination legislation. There was no suggestion that the nature of this provision was affected or dictated by the parts of the building which do not have a relevant residential purpose.
Thirdly, we find that the First-Aid Room area (no. 136) qualifies for zero-rating. This is the only first-aid provision in the building and was required whether or not the bar, shop and other "non-residential" areas were included in the Facilities Building.
The other parts of the Building itemised in Paragraph 6 seem to be "mixed use" areas, whether for the servicing and administration of the whole building or for staff working in all areas. Accordingly, applying our interpretation of Note (10) these other parts do not qualify in whole or part for zero-rating as having a relevant residential purpose.
Accordingly the Appeal succeeds in respect of the 3 further areas specified in the preceding paragraphs. Parties indicated that a direction by the Tribunal in such terms was sufficient for the purpose of resolving the dispute.
Expenses
We consider that the Appellant has achieved a substantial measure of success in these proceedings as a result of our findings and the Respondents' during the course of the Hearing, altering their stance in relation to the Kitchen Chef's Office. We note the Respondents' submissions anent expenses in paragraph 22 of their Skeleton Argument. Although we have upheld the Respondents' interpretation of the controversial statutory provisions we award expenses to the Appellant. Failing agreement, these will require to be taxed in terms of Rule 29(3).
Finally, we have to thank both Miss Carty and Mr Saunders for their presentation of their arguments and, in particular, their settling the terms of the Statement of Agreed Facts.
EDN/03/76