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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Hospital Of St John And St Elizabeth v Revenue and Customs [2005] UKVAT V19141 (29 June 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19141.html
Cite as: [2005] UKVAT V19141
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- The Appellant was appealing against the Respondents' decision dated 25 March 2004 that the Appellant was not entitled to issue a certificate to Buxton Building Contractors to qualify for zero rating of supplies in connection with the construction of the Butterworth Centre to accommodate elderly mentally infirm persons.
- There were two issues in dispute:
- The Appellant has to satisfy the Tribunal on the balance of probabilities that it intended to use the Butterworth Centre for a relevant residential purpose.
- Item no 2(a) of Group 5 of Schedule 8 of the 1994 Act zero rates the supplies in the course of the construction of a building intended for use solely for a relevant residential purpose.
- Item no 2(a), however, is subject to Note 12 which provides that
- Note 4 defines use for a relevant residential purpose, the relevant parts of which are as follows:
- We were referred to the following authorities:
- We were referred to the following decisions of the VAT and Duties Tribunal:
- We heard evidence from Christopher Broad, Chief Executive of the Hospital of St John and St Elizabeth. We made a site visit of the Butterworth Centre, the hospital and the hospice at St John and St Elizabeth. We were provided with a bundle of documents.
- The Hospital of St John and St Elizabeth was an independent charitable Catholic hospital founded by the Sisters of Mercy in 1856 on their return from the Crimean War where they assisted Florence Nightingale. The Church or any religious order did not own the Hospital. In 1994 a company limited by a guarantee was formed for the purpose of being the sole trustee of the Appellant which was registered with the Charity Commissioners and with the Healthcare Commission as an independent hospital. On 29 August 2003 the National Care Standards Commission (the successor body to the Healthcare Commission) considered that there was no need to register the Butterworth Centre.
- In 1948 the Appellant declined to join the National Health Service and has remained outside the public health system, although it has substantial contracts with NHS Trust Hospitals and Primary Care Trusts.
- The Objects of the Appellant were:
- The Appellant has three distinct functions, namely:
- The annual revenue budget for the Appellant was £30m of which 72% comes from private patients, 25% from National Health Service and 3% from fundraising activities. The hospice and the Butterworth Centre were funded principally by the National Health Service with a small contribution from fund raising activities.
- The Chief Executive emphasised the importance placed by the Appellant on its links with the local community. The Appellant differed from many independent hospitals in that it did not actively seek patients from overseas. In his opinion the hospice facility was a visible demonstration of the Appellant's commitment to the local community.
- In 1997 the Kensington, Chelsea and Westminster Health Authority (hereinafter referred to as the Health Authority) invited the Appellant to tender for services in respect of "elderly people with mental illness". In 1998 the Appellant submitted an outline business case to the Health Authority which involved the redevelopment of Wiseman House (later known as Butterworth House) located on the Appellant's site for care of elderly mentally ill. During the next three years the Appellant's management team and the Health Authority held detailed discussions about the bid. The Appellant's Board of Directors also considered an alternative use for Wiseman House providing psychiatry and primary care services.
- On 25 April 2001 the Board approved the "elderly mentally option". The minutes of the meeting recorded that this option had the advantages of not requiring capital financing and providing a guaranteed annual income by way of rental available from day one of the construction period. In contrast the minutes noted that psychiatry/primary care option represented a higher risk and a lower financial return.
- On 12 October 2001 the Appellant and the Health Authority signed a Capital Grant Agreement and a Funding Agreement. Also on that date a Deed of Variation was executed between The Trustees of the Brampton Trust (the landlord of the Hospital site) and the Appellant (the tenant of the Hospital site).
- Under the Capital Grant Agreement the Health Authority agreed to fund the capital costs to a maximum of £6, 405, 000 of the redevelopment of Wiseman House to enable it to be used for the accommodation and care of elderly people with mental illness. The Appellant undertook the following (amongst other matters):
- Under the Funding Agreement the Appellant agreed to make Wiseman House (later known as Butterworth Centre) available exclusively to the Health Authority on the terms set out in the Capital Grant agreement for a 25 year term in return for an annual charge of £405,000 with seven year reviews. The Appellant covenanted with the Health Authority that Wiseman House would not be used for any purpose other than that set out in the Capital Grant agreement.
- Under the Deed of Variation the Trustees of the Brampton Trust allowed the Appellant to alter Wiseman House on the following conditions:
- On the 19 October 2001 the Appellant issued a certificate in accordance with the requirements of VAT Notice 708 "Buildings and Construction" to Buxton Building Contractors Ltd certifying that the building works on Wiseman House were for the purposes of constructing a relevant residential and charitable building.
- The Appellant commissioned Buxton Building Contractors Ltd to demolish Wiseman House and replace it with a new four storey building with a basement. The new building was named the Butterworth Centre.
- The construction of the Butterworth Centre was completed on 18 August 2003. The Centre was not connected to any other building having its own entrance and services. The ground floor and the next two floors shared the same layout of single and twin bedded ensuite units with communal sitting and breakfast areas together with a group dining and activity area. The third floor consisted of rooms for craft and mixed activities, a hairdressing unit for the residents and a bedroom for visiting carers plus a kitchen and food preparation area and staff facilities. There was also a roof terrace on the third floor for the benefit of the residents. The building was designed to enable the residents to roam freely on each floor but unable to go to other floors or outside unaccompanied. Access to the lifts and external doors was controlled by a security card system. The basement contained car parking and limited storage areas.
- The Centre provided 45 bedded units, some of which catered for married couples. At the time of the hearing there were 30 residents occupying the first two floors. The Chief Executive informed the Tribunal about the imminent admission of new residents onto the ground floor. As part of the original planning for the Centre four of the bedded units were intended for use as respite care. As at the date of the hearing none of the bedded units had been used for respite care.
- The first residents of the Butterworth Centre were transferred from the NHS facility for the "elderly mentally ill" at Athlone House North London.. The residents suffered from severe dementia which made it unsuitable for them to remain in their own home.
- The successor body to the Health Authority, the Westminster Primary Care Trust (hereinafter referred to as the Primary Care Trust) made a Service Agreement with the Appellant and Central North West London Mental Health NHS Trust (hereinafter referred to as the Mental Health Trust). The Agreement covered the joint provision by the Appellant and Mental Health Trust of a continuing care service for older people with mental health problems at the Butterworth Centre for the financial year 1 April 2003 to 31 March 2004. The three parties signed the Agreement on dates between 16 October 2003 to 8 January 2004. Under its terms the Mental Health Trust took responsibility for provision of overall clinical management of the residents at the Butterworth Centre including medical and nursing care. The Appellant provided the non-clinical support services, therapy and general medical backup together with the overall maintenance and security provision of the unit. The Primary Care Trust paid for these services on a monthly basis to the Appellant, which in turn transferred to the Mental Health Trust the share of the payment relating to the clinical services..
- The Revised Summary of Revenue Costs for the financial year 2003/04 attached to the Service Agreement revealed that
- Mr Hitchmough contended on behalf of the Appellant that the use of the Butterworth Centre fell within both paragraphs b and g of Note 4 of Group 5 of Schedule 8 of the 1994 Act. The main issue, however, was whether the exception to Note 4 of "hospital or similar institution" applied to the intended use of the Butterworth Centre.
- Mr Hitchmough pointed out that there was no statutory definition in the VAT legislation of "hospital or similar institution". He was of the view that great care needed to be applied when construing "similar institution". Further, "similar institution" should not be interpreted in such a way as to render the specific examples of use for a relevant residential purpose contained in Note 4, in particular hospice, ineffective.
- Mr Hitchmough submitted that it was virtually impossible to lay down an exhaustive definition of "hospital or similar institution". He endorsed the approach taken by the VAT and Duties Tribunal in General Healthcare Group (VTD 17129) where the Tribunal formed the view that definitions of hospitals in other statutes were unlikely to be of assistance. The Tribunal formulated a "badges approach" to the definition of hospital based upon the badges of trade concept which was used in direct taxation to determine whether a taxpayer was trading or not. This approach involved the application of the facts of a particular case against characteristic badges of a hospital. The specific badges identified in the General Healthcare Group were treatment, diagnosis, in patient facilities, medical staff, and length of stay. .
- Mr Hitchmough also advocated the alternative approach adopted by the Tribunal in Fenwood Developments (VTD 18975) which followed the dissenting judgement of Denning LJ (as he then was) in General Committee of The Royal Midland Counties Home for Incurable at Leamington Spa [1954] 1 Ch 530 at 547 & 548. Denning LJ defined a hospital:
- Miss Whipple on behalf of the Respondents accepted that the Butterworth Centre met the requirements of Note 4(b) but expressed doubts about whether it fulfilled the criteria for Note 4(g), in particular whether the Centre was the sole or main residence of at least 90% of its residents. She referred to the entry on the Mental Health Trust website which stated that there were 30 beds available at the Butterworth Centre of which four were for respite care. However, her principal submission was that the intended use for the Butterworth Centre was not solely for a relevant residential purpose. In her view the intended use incorporated elements characteristic of hospitals and similar institutions. If that was so the Appellant was not entitled to rely upon the exception of relevant residential purpose to support the zero-rating of the supplies in connection with the construction of Butterworth House.
- Miss Whipple disagreed with the approach taken by Mr Hitchmough in respect of the definition of the term "hospital or similar institution". She considered that the badges approach was unduly restrictive and should not be applied more widely. Miss Whipple accepted the inherent difficulties associated with the interpretations of hospice and hospital or similar institution in Note 4 but pointed out that the Tribunal was not dealing with a hospice in this case.
- Miss Whipple submitted that the Tribunal should construe "hospital or similar institution" using the definition in the National Health Service Acts, which was explored by the Court of Appeal in General Committee of The Royal Midland Counties Home for Incurables at Leamington Spa [1954] 1 Ch 530. In her opinion it was entirely correct for the Tribunal in this case to rely on the definition of hospital in the Health Services legislation, particularly as they formed the regulatory framework for the Appellant's health care business. Further zero-rating was a peculiarly domestic area of VAT law guided more by the political choices of the Member States than the inherent principles of Community law. The application of the definition of hospital in the National Health Service Acts to the VAT Act 1994 ensured the coherence of domestic legislation with respect to the interpretation of key words and terms.
- Section 128 of the National Health Service Act 1977 defined a hospital: "as any institution for the reception and treatment of persons suffering from illness". According to Miss Whipple the distinguishing feature of hospitals was that they provided treatment. There was no statutory definition of treatment, however, the Court of Appeal in General Committee of The Royal Midland Counties Home for Incurables at Leamington Spa [1954] 1 Ch 530 provided authoritative guidance on the meaning of treatment in the context of a hospital. Treatment was different from caring because it involved the exercise of professional skill and judgement in dealing with ill persons. Denning LJ (as he then was) sought to limit treatment to remedying illness, however, Lord Evershed MR and Lord Romer preferred a wider remit for treatment which incorporated nursing of the sick by professionally trained persons.
- Miss Whipple advocated the case for the wider meaning of treatment citing the definition of medical treatment in section 145 of the Mental Health Act 1983, which included nursing and care, habilitation and rehabilitation under medical supervision. Further, she drew the attention of the Tribunal to the Court of Appeal decision in R v North and East Devon Health Authority ex parte Coghlan [1999] Lloyds LR Med 306 which examined nursing as either "health care" or "social care" for the purpose of deciding whether nursing should be provided free of charge by the NHS or subject to means testing by the local authority. In this context nursing which was merely incidental or ancillary to the provision of accommodation fell within the category of social care. Miss Whipple, considered that the nursing and medical services provided at the Butterworth Centre fell within the definition of treatment and were not merely incidental or ancillary to the provision of accommodation. The Butterworth Centre, therefore, was properly categorised as a "hospital or similar institution" and the Appellant was not entitled to zero rate the supplies in connection with the construction of the Centre.
- We prefer the approach advocated by Miss Whipple for determining whether the Butterworth Centre was a "hospital or similar institution", in particular applying the definition of hospital in section 128 of the National Health Service Act 1977. Her central submission that the disputed issue was a question of fact to be analysed against the continuum of care/treatment was sound. We accept the majority decision of the Court of Appeal in General Committee of The Royal Midland Counties Home for Incurables at Leamington Spa [1954] 1 Ch 530 about the wider interpretation of treatment with the rider that we are considering the delivery of care/treatment in 2001 not in 1954. We find no compelling reason to depart from the majority decision in the Incurables, particularly in light of Miss Whipple's analysis of the term "treatment" in other relevant legislation.
- We gain some support for our preferred approach from the decisions of the VAT and Duties Tribunal in Wallis Ltd (18012) and Fenwood Developments Ltd (18975). The facts of Wallis Ltd (18012) were different from those in this case as some of the residents were subject to hospital orders under section 37 of the Mental Health Act 1983 and could not have been admitted to the institution unless it was a hospital. The Tribunal, however, gave weight to the definition of hospital in the National Health Service Act 1977 in arriving at its decision. In Fenwood the Tribunal analysed the facts against the care/treatment continuum but preferred the narrower interpretation of treatment as stated by Denning LJ in the Incurables. We find the "badges approach" in General Healthcare Group Limited of limited assistance because the badges were derived from the specific facts of the case which questions their relevance for different sets of circumstances. Also some of the findings of fact appeared to fall outside a badge which in our view cast doubt on the general application of this approach.
- Mr Hitchmough submitted that the wider interpretation of "treatment" would as a matter of course bring hospices within the definition of "hospital or similar institution" which would have the effect of rendering at the very least one of the specific examples of relevant residential purpose in Note 4 Group 5 meaningless. We are unable to assess the validity of this proposition in this case because we are not examining whether the Butterworth Centre was a hospice or not. However, we consider that some of difficulties with the construction of Note 4 stem from a rigid categorisation of the relevant residential purposes and the exceptions. Lord Evershed MR in the Incurables at 545 expressed the view that whether an institution was a hospital or not was a question of fact but may in the end be one of degree. We consider that our approach captures the essence of Lord Evershed's ruling. Essentially we are required to make findings of fact with no specific finding being decisive and weigh up those findings against the continuum of care/treatment to form a judgment about whether the intended use of the Butterworth centre was solely for a relevant residential purpose or a hospital or similar institution.
- We had the benefit of visiting the Butterworth Centre and comparing it with the facilities in the adjacent acute hospital. We also visited the hospice but drew no comparisons with it because it was not relevant to the issue in dispute. Our findings of fact on the respective facilities are as follows:
- Our findings of fact in relation to the residents are as follows:
- Our findings of fact in relation to the regime at the Butterworth Centre:
- We deal first with Miss Whipple's doubts about whether the Butterworth Centre met the criteria for Note 4(g) namely, "was it the sole or main residence of at least 90% of its residents"? Our finding that it was intended to reserve four respite beds out of the original allocation of 45 beds, in our view satisfied the 90% test. The Respondents agreed that the Butterworth Centre met the requirements for Note 4(b), namely that "it was a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, or past or present mental disorder".
- The issue that remains to be decided is whether the intended use of Buttermere Centre incorporated use as a hospital or similar institution. We have already decided to adopt the wider interpretation of treatment as the defining feature of hospital or similar institution. Our findings of fact on the building, the residents and the regime when taken together overwhelmingly support the conclusion that the intended use of the Centre was to care for the residents not to treat them. The design of the Centre was materially different from the hospital with its emphasis on providing a home and having no trappings of treatment, such as piped oxygen. The majority of the nurses were unqualified. They used their abundant good sense rather than professional skills in meeting the needs of the residents. Medical staff exercised their professional skills in respect of the mental health of the residents in the Acute Assessment Centre at St Pancreas not at the Butterworth Centre.
- Miss Whipple emphasised three particular aspects of the case to support her contention that the residents were being treated. There is an inherent danger with this approach in that it elevates particular factors which can distort the overall picture constructed by all relevant facts when viewed as a whole. The facts cited by Miss Whipple were as follows:
- Miss Whipple advanced other arguments which we need to answer. She considered that the Butterworth Centre was effectively a NHS facility, the Mental Health Trust supplied the clinical staff and references to NHS standards were prominent throughout the building. We placed no weight on her contention because this fact alone was not determinative of whether treatment or care was provided in the Centre. The Appellant's Chief Executive disputed her contention that it was an NHS facility.
- Miss Whipple requested us to draw an inference that the Butterworth Centre must be a hospital by the refusal of the National Care Standards Commission to register the Centre. Miss Whipple took us through the various statutory provisions and concluded that the only reason why the Commission refused the registration was that it regarded the Centre as a hospital. We decline to draw this inference because the letter from the Commission dated 29 August 2003 did not give its reasons for refusing registration. The Appellant's Chief Executive considered that the Commission was wrong in not registering the Centre. Thus it was a matter of ongoing dispute between the Appellant and the Commission. Finally if we acceded to this request we would be abdicating our statutory responsibilities to determine the disputed issue on Appeal. The fact that another body may decide that the Centre was a hospital does not absolve us from our obligation to determine the facts and apply the law to the disputed issue.
- Miss Whipple raised various points about the informal status of the residents under the Mental Health Act and the possibility of potential sectioning under the Act if they rejected the care or persistently sought to leave the Centre. We consider that Miss Whipple's submissions in this area were diluted by the arrangements put in place by the Appellant and the Mental Health Trust to carry out the mental health assessments in the Acute Assessment Unit at St Pancreas Hospital and not in the Centre which had no capacity to section residents.
- We are, therefore, satisfied on the facts found as set out in paragraphs 41 43 above that the intended use of the Buttermere Centre was solely for the relevant residential purposes as detailed in Notes 4(b) and (g) and that it was not intended to be used as a hospital or similar institution.
- Mr Hitchmough for the Appellant propounded that the broad effect of the Capital Grant and Funding Agreements of the 12 October 2001 was that the residents would be housed and cared for by the Hospital. Further the Primary Care Trust was given by the Hospital the exclusive right to nominate the residents in return for its funding. He considered that the Respondents' suggestion that the Trust was the user of Butterworth House artificial and did not reflect the arrangements as set out in the October 2001 agreements.
- Mr Hitchmough submitted that on a proper construction of the October 2001 agreements the Appellant was primarily responsible for the provision of care in the Butterworth House. It was not shared jointly with the Mental Health Trust. In the alternative the wording of Note 12(a) to Group 5, which referred to "a person not the person" did not, therefore, require that the construction services be supplied to all intending users of building. The requirements of Note 12 (a) were met if the supplies were to one of the joint users, namely the Appellant.
- Miss Whipple for the Respondents contended that the Appellant's involvement with the Butterworth Centre consisted of two aspects. First it made the Centre available to the Primary Care Trust for its exclusive use in consideration of the annual payment of £405,000. Second, it supplied certain services as defined in the 2003/04 Service Agreement which effectively amounted to hotel services. On this analysis the Appellant was providing certain facilities to enable the Primary Care Trust and or the Mental Health Trust to provide a care home. Thus on the facts the Appellant was either using the Butterworth Centre to make onward supplies to the Trusts or using the Centre jointly with the Mental Health Trust. Either way the Appellant's use fell outside the requirements of Note 12(a).
- The Appellant was asked by the Health Authority to tender for the provision of services for the "elderly mentally ill". The Authority followed the rules for public procurement of building projects which required a full option appraisal of the tenders. The Appellant was not the sole body to tender for the services.
- The Appellant's Board of Directors considered another use for the redevelopment of Wiseman House. Thus the Board was required to approve the project to construct the Butterworth Centre, which it did unanimously on 25 April 2001.
- The Appellant alone commissioned the construction of the Butterworth Centre by Buxton Building Contractors. The Appellant issued the zero-rating certificate under Note 12(b) of Group 5 of Schedule 8 of the 1994 Act to the contractors.
- The Capital Grant Agreement and the Funding Agreement between the Health Authority and the Appellant were signed on the 12 October 2001, some seven days before the issue of the zero-rating certificate to the contractors. The Service Agreement between the Primary Care Trust (successor body to the Health Authority), the Appellant and the Mental Health Trust was not ratified by all three parties until 15 January 2004.
- Under the Capital Grant Agreement, the Health Authority agreed to fund the construction of the Butterworth Centre in return for undertakings from the Appellant which included that the Butterworth Centre be used as a home for the accommodation and care of the "Intended Residents". The Appellant undertook to nominate only those persons who were defined as "Intended Residents" in the Agreement to use or occupy the Centre. Under the Funding Agreement the Health Authority agreed to provide the revenue funding for the Butterworth Centre for a 25 year term provided the Appellant made it available to the Authority exclusively on the terms set out in the Capital Funding Agreement.
- The Capital Grant Agreement and the Funding Agreement did not give the Health Authority a legal interest in the Butterworth Centre nor a right to occupy it. The Health Authority's right was restricted to nominating the residents for the Centre. The Appellant held the leasehold interest in the Centre with the reversionary interest being held by the Trustees of the Brampton Trust.
- The definition of "Intended Residents" within the Capital Grant agreement permitted the Health Authority to nominate another client group other than elderly people with mental illness with the consent of the Appellant which could not be unreasonably withheld. Further the Health Authority could not require the Butterworth Centre to be used for a purpose which would conflict with the Appellant's charitable status or cause the Appellant to repay the VAT refunded to it in respect of the development. The Appellant's Chief Executive explained that there was no intention on the part of the parties to depart from using the Centre for elderly people with mental illness. Such a clause was commonplace in agreements of 25 years because of the requirement to protect the public purse if in the event the need to provide accommodation and care for elderly people with mental illness dissipated. We accept the Chief Executive's explanation as an accurate interpretation of the clause. We also attached no significance to the reference to the Appellant's VAT position, which we considered to be normal commercial practice akin to tax warranties and indemnities found in most commercial contracts. The Chief Executive expressed the view that he was advised by the Appellant's lawyers that the Appellant would have the capability to withdraw from the Agreements with the Health Authority within the 25 year term on repayment of the capital grant. We hold doubts about whether the Chief Executive has correctly understood the advice, particularly as he could find no clause to this effect in the Agreements.
- Under the Licence to Carry Out Alterations and Deed of Variation also dated 12 October 2001 the Brampton Trust Trustees (landlord of the hospital site) gave their consent to the Appellant (tenant of the hospital site) to carry out the permitted works to Wiseman House. The consent was on the basis that the Health Authority funded the works whilst the Appellant provided the healthcare services. We consider this statement in the Deed of Variation sums up the precise relationship between the Health Authority and the Appellant. The description fitted with the current organisational split within the National Health Service between purchaser of services (Health Authority) and provider of services (the Appellant).
- The Capital Grant Agreement and the Funding Agreement made no reference to the involvement of the Mental Health Trust with the provision of the healthcare services within the Butterworth Centre.
- The 2003/04 Service Agreement stipulated that the Appellant and the Mental Health Trust would jointly provide the service for older people with mental problems accommodated at Butterworth Centre. The Chief Executive explained that the Appellant was responsible for the provision of healthcare services at the Centre, however, it decided to sub-contract the clinical services to the Mental Health Trust. The Appellant chose this course of action because:
- The Chief Executive stated that the detailed negotiations about the sub-contracting arrangements took place sometime after the execution of the 12 October 2001 agreements. His statement appeared to be contradicted by the architectural drawings for the Butterworth Centre dated 1999 and 2000 which referred to the Mental Health Trust as the client not the Appellant. The Respondents' Counsel at the hearing, however, did not challenge the Chief Executive, with this anomaly. Instead Miss Whipple concentrated on the website for the Mental Health Trust which advertised the Butterworth Centre as its facility. We do not place weight on the website because it was principally used as a means to communicate to the public the range of healthcare services on offer rather than defining the relationships of the various bodies involved with the Butterworth centre.
- The Chief Executive pointed out that the Service Agreement was effectively a rolling one year agreement which did not require the Appellant to commit long term to the joint provision of services with the Mental Health Trust. Under the terms of the Service Agreement, the Primary Care Trust made payment for the whole service to the Appellant. The Mental Health Trust received its share of the payment from the Appellant. The Service Agreement gave no legal rights of occupation to the Primary Care Trust and the Mental Health Trust in respect of the Butterworth Centre. The Service Agreement in our opinion has more in common with an operational management document than one which was intended to create precise legal responsibilities and outcomes.
- We have examined carefully the Chief Executive's evidence. We consider that the evidence about the terms of the Capital Grant Agreement and Funding Agreement which mentioned the Appellant but not the Mental Health Trust, the payment mechanism in the Service Agreement and its one year rolling nature give credence to the Chief Executive's assertion that the Appellant was the primary provider of services and outweigh the evidence to the contrary: the architectural drawings and the website.
- Miss Whipple submitted that the Capital Grant Agreement and the Funding Agreement were self serving documents, structured in such a way to preserve the zero rating treatment for the construction services associated with the Butterworth Centre. According to Miss Whipple these Agreements when examined alongside the Service Agreement supported the proposition that the Appellant was making onward supplies of the building and the hotel services to the Primary Care Trust and the Mental Health Trust. The Appellant was not, therefore, the intended user for the Butterworth Centre at the time it issued the zero-rating certificate. The intended user was either the Health Authority or the Mental Health Trust or both of them.
- On the facts found we are not persuaded by Miss Whipple's analysis. The Capital Grant Agreement and Funding Agreement represented the outcomes of a lengthy negotiation conducted at arms length between equal parties subject to the transparent procedures for public procurement. Under those agreements the Health Authority was given neither a legal interest nor right to occupy the Butterworth Centre. The Deed of Variation between the Brampton Trustees and the Appellant executed on the same day, 12 October 2001 recited that the Health Authority funded the works whilst the Appellant provided the healthcare services which we consider to be an accurate description of the effect of the Capital Grant Agreement and Funding Agreement. This description conformed with current understanding of the role of Health Authority/Primary Care Trust as purchaser of healthcare services.
- We interpret the phrase "a person who intends to use the building for a relevant residential purpose" in the context of Note 12(a) Group5 Schedule 8 as a person who has some legal rights to determine the use of the building and be actively involved in its running for the prescribed purpose. We consider that the Health Authority did not meet the requirements for intended user of the Butterworth Centre. The Authority has neither legal interest nor right of occupation in the Centre. The Authority can nominate the residents and presumably enforce the Agreements if the Appellant breached its covenants regarding use but we consider those legal rights did not empower the Authority to use the building for a relevant residential purpose. The Authority was a purchaser of healthcare services. It did not have the capacity to provide the services and relied upon others to provide them. The Health Authority was not actively involved in the provision of personal care and accommodation at the Butterworth Centre. In contrast the Appellant has legal rights to occupy the Butterworth Centre and use the Centre for the relevant residential purpose. Further the Appellant provided care services from the Centre to the residents and was actively involved in the service provision. We are, therefore, satisfied that the Health Authority did not meet the requirements of Note 12(a) in respect of an intended user of the Butterworth Centre.
- We have found as fact that the Mental Health Trust was not designated by the Health Authority and the Appellant as an intended user of the Butterworth Centre at the time of the execution of the Capital Grant Agreement and the Funding Agreement and the submission of the zero-rating certificate. This finding in itself is sufficient for us to rule out the Mental Health Trust as an intended user of the Butterworth Centre. However, we have also found on the balance of probabilities that the Appellant subcontracted the clinical services to the Mental Health Trust and that the 2003/04 Service Agreement gave no legal rights to the Trust in respect of the use of the building. The subcontracting arrangement suggested that the Mental Health Trust has a subservient relationship with the Appellant rather than a relationship of joint use. We conclude that the Mental Health Trust did not meet the requirements of Note 12(a) in respect of an intended user of the Butterworth Centre. In view of our finding it is unnecessary for us to determine Mr Hitchmough's submission about the construction of Note 12(a) regarding the supplies of building services to one of the joint users of the building.
- We have established by agreement of the parties that the supplies relating to the construction of Butterworth Centre were supplied to the Appellant alone. We have found as fact that the Appellant has a legal right to occupy and use the Butterworth Centre for the personal care and accommodation of the residents. Further the terms of the Capital Grant and Funding Agreement required the Appellant to provide the healthcare services associated with the building. We are, therefore, satisfied that the Appellant meets the requirements of Note 12(a) in respect of an intended user of the Butterworth Centre.
- We have found in favour of the Appellant in respect of the two areas of dispute. We are satisfied on the balance of probabilities that the Appellant was the intended user of the Butterworth Centre and that it intended to use the building solely for a relevant residential purpose. We, therefore, allow the Appeal. We order the Respondents to pay the costs of the Appellant. If the parties are unable to agree the costs they are at liberty to apply to the Tribunal for a determination.
19141
VAT ZERO RATING CONSTRUCTION SERVICES Relevant residential purpose use as hospital or similar institution treatment defining characteristic of hospital or similar institution on the facts satisfied intended use solely for relevant residential purpose no use as hospital or similar institution were construction services supplied to intended user intended user legal rights over the property and actively involved with service provision Appellant meets these requirements, others do not Appeal Allowed
LONDON TRIBUNAL CENTRE
HOSPITAL OF ST JOHN AND ST ELIZABETH Appellant
- and -
HM REVENUE and CUSTOMS Respondents
Tribunal: MICHAEL TILDESLEY (Chairman)
MICHAEL SILBERT FRICS
Sitting in public in London on 12 & 13 May 2005 (the sitting on 13 May was held at the Hospital of St John and St Elizabeth)
Andrew Hitchmough, Counsel for the Appellant
Philippa Whipple, Counsel instructed by the Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2005
DECISION
The Appeal
The Issues for Determination
(1) Whether the sole intended use for Butterworth Centre was a relevant residential purpose within the meaning of Note 4 of Group 5 of Schedule 8 of the Value Added Tax Act 1994 (hereinafter referred to as the 1994 Act), in particular whether its intended use was as a hospital or similar institution.
(2) If the intended use of the Butterworth Centre was solely for a relevant residential purpose, whether the Appellant was the intended user of the Centre.
The Legislation
Where all or part of a building is intended for use solely for a relevant residential purpose-
a) a supply relating to the building shall not be taken for the purposes of item 2 as relating to a building intended for such use unless it is made to a person who intends to use the building for such a purpose, and
b) a grant or other supply relating to the building shall not be taken as relating to the building intended for such use unless before it is made the person to whom it is made has given the person making it a certificate in such form as may be specified in a notice published by the Commissioners stating that the grant or other supply so relates.
b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder;
c) a hospice;
g) an institution which is the sole or main residence of at least 90% of its residents.
except use as a hospital, prison or similar institution.
Authorities
Minister of Health v General Committee of The Royal Midland Counties Home for Incurable at Leamington Spa [1954] 1 Ch 530.
R v North and East Devon Health Authority ex parte Coghlan [1999] Lloyds LR Med 306.
R v Bournewood Community and Mental Health NHS Trust ex parte L [1999] AC 458
Reid v Secretary of State for Scotland [1999] 2 AC 512.
General Healthcare Group Limited v The Commissioners of Customs and Excise (VTD 17129)
Wallis Limited v The Commissioners of Customs and Excise (VTD 18012)
Fenwood Developments Limited v The Commissioners of Customs and Excise (VTD 18975)
The Evidence
The Facts Not in Dispute
(1) To provide a hospital for the reception, care and treatment of patients without distinction, and in particular for patients requiring palliative care.
(2) To serve the sick and dying and to care for the physical, spiritual and emotional needs of patients irrespective of nationality or religion.
(3) To undertake charitable work at present in the form of a Hospice dedicated to palliative care.
(1) Acute private healthcare (including the birth unit).
(2) The hospice and palliative care unit which included facilities for persons suffering from HIV.
(3) The Butterworth Centre.
(1) To use the building (Wiseman House) as a home for the accommodation and care of the intended residents.
(2) Not to permit anyone other than the intended residents to reside at the building.
(3) To indemnify the Health Authority against all potential claims arising out of and in connection with the Appellant's use of the building.
(4) Not to refuse access to the building by the Health Authority.
The Health Authority undertook that nothing in the agreement would entitle it to nominate anyone other than the intended residents to use or occupy the building. The agreement defined intended residents as
"elderly people with a mental illness and/or such other client group as the Health Authority may reasonably require having first obtained the Hospital's approval of such other client group which approval shall not be unreasonably withheld provided that the Authority may not require the building to be used for a purpose that conflicts with the charitable objects of the Hospital or (during the period of 10 years from the Date of Practical Completion) for any purpose that would or might result in the Hospital having to repay the Value Added Tax refunded to it in respect of the Development".
(1) The Health Authority fund the alterations in accordance with the Capital Grant agreement.
(2) The Appellant provides healthcare services for the Health Authority in accordance with the Capital Grant agreement.
(3) The Health Authority provide funding to the Appellant in accordance with the Funding Agreement.
(1) The Primary Care Trust provided funds of £2, 298, 299 which was split £1,339,943 and £958,356 between the Mental Health Trust and the Appellant respectively.
(2) The £958,356 for the Appellant included the annual charge of £405,000 under the Funding Agreement of 12 October 2001.
(3) The payment to the Mental Health Trust was for amongst other things 0.20 whole time equivalent (WTE) of a medical consultant, 10 nursing staff of D grade and above and 28 nursing staff of B grade.
(4) The Appellant supplied no medical staff except 0.50 (WTE) of a doctor.
Was the Butterworth Centre used solely for a Relevant Residential Purpose?
The Submissions of the Parties
" as an institution whose main purpose was to treat patients for their illnesses by the exercise of professional skill. Treatment was the exercise of professional skill to remedy the disease or disability, or to lessen its ill effects or the pain and suffering which it occasions; whereas care was the homely art of making people comfortable and providing for their well-being so far as their condition allows".
Mr Hitchmough, therefore, concluded that hospitals were characterised by their aim to cure which could be another "badge" or an approach in itself for defining the term hospital. Whichever approach was taken by the Tribunal, Mr Hitchmough submitted that the facts about the intended use of the Buttermere Centre did not support the conclusion that it was a hospital or similar institution.
The Approach adopted by the Tribunal
Our Findings of Fact
(1) The Butterworth Centre was a four storey building with the same layout on the ground floor and the first two floors. The layout was geared towards promoting social interaction between the residents with seating and breakfast areas and a group and dining activity area. The third floor continued with the theme of social interaction with mixed activity and group areas and hairdressing salon. In contrast the hospital had very limited or no areas for social interaction. The Chief Executive informed us that the hospital patients remained in their rooms. In the modern wing of the hospital there was a prominent nurses' station or counter which conveyed a clear message about the purpose of the hospital. The Butterworth Centre did not have these prominent nurse stations.
(2) The bedrooms in the Butterworth Centre were similar in size and layout to the bedded units in the modern wing of the hospital with both having ensuite facilities. However, there were distinctive differences between the two. The hospital units had piped oxygen which was not present in the Butterworth units. No medical equipment was provided for in the Centre. Bedroom furniture was fitted in the Butterworth unit but not in the hospital. The Butterworth residents had their names prominently displayed on the doors to their individual bedrooms, which was absent from the hospital units.
(3) The Butterworth Centre had bedrooms set aside for visitors to the residents, which enabled them to stay overnight. Also some of the bedrooms in the Centre were designed for married couples.
(4) There were no seclusion facilities or restraints in the Centre.
(5) There were no assessment facilities in the Centre and none provided for when the original plans for the building were drawn up. There were subsequent discussions in 2004 about incorporating the acute assessment unit at St Pancreas in the Butterworth Centre but the Appellant rejected this.
(6) The residents were able to decorate their own bedrooms in the Centre, although in reality this option was not taken up because of their dementia.
(7) The Butterworth Centre was originally designed to have four respite beds in a 45 bedded unit. There had been no take-up of the respite facilities. Respite facilities, however, were not a feature associated with hospitals.
(8) The facilities that we observed at the Butterworth Centre were not at variance with the Architects' drawings for the Centre. Thus our findings on the present facilities for the Centre were consistent with the intended use for the building.
(1) The residents living at the Butterworth Centre were elderly and suffering from severe dementia, which was a life threatening illness with no cure. The residents, however, did not experience pain or distress from their dementia. They were extremely confused and unable to look after themselves. They required a secure environment for their safety. We accepted the Chief Executive's evidence that these symptoms did not require medical intervention or treatment, for example, pain management.
(2) The residents have individual care plans in accordance with NHS requirements and the Mental Health legislation.
(3) The process for admitting residents involved an assessment by an NHS consultant psychiatrist following a referral by their local GP. The assessment took place at an acute assessment centre not located on the Hospital site or the Butterworth Centre. The purpose of the assessment was to decide whether their level of dementia would make them unsuitable to remain at their home. If they required short term psychiatric care they were admitted to the acute assessment unit in St Pancreas NHS Hospital. The residents admitted to the Butterworth Centre were not sectioned under the Mental Health Acts.
(4) Once admitted to the Centre the residents remained there until they die. The average length of stay for a patient in the acute hospital was 2.9 days. The residents were registered with their local GP and their personal correspondence was addressed to them at the Centre. They were entitled to receive visitors at any time of the day and keep their personal possessions in their rooms.
(1) The aims of the regime were to provide the residents with a home for life and to maximise the quality of their life through social interaction with other residents, parties, concerts and other activities and through therapy to enhance mobility and independence. The Chief Executive described this as a new model of care where the residents can live in a pleasant secure stimulating environment which was physically separate from the hospital but which took advantage of the resources available to the Appellant to improve general health and quality of life.
(2) In the Capital Grant Agreement of 12 October 2001 the Appellant undertook that the Centre would be used as a home for the accommodation and care of the residents. No mention was made in the Agreement about the treatment of residents.
(3) A team of 38 nurses employed by the Mental Health Trust, which is an NHS establishment, looked after the residents. 28 (74%) of the nursing team were not professionally qualified as nurses, although they were encouraged to gain a NVQ level 2 in care. They were not permitted to administer drugs or medicine. At any one time there were five/six nurses on duty with the unqualified nurses predominant. Professionally qualified nursing staff supervised the unqualified staff. This arrangement was necessary to meet NHS requirements and for health and safety. The ratio of unqualified to qualified nursing staff on a hospital wing or ward was different with qualified staff forming a significant majority.
(4) The predominance of unqualified nursing staff in the Butterworth Centre was indicative of the regime of care that prevailed there. The unqualified staff were there to look after the every day needs of the residents, such as taking them to the toilet and washing. If a resident got angry or frustrated the staff would talk to him rather than administer drugs. This level of care did not require the exercise of professional skill but instead the application of abundant good sense.
(5) The psychiatric consultant engaged by the Mental Health Trust saw the residents once every two weeks. The purpose of his visit was to record any deterioration in their condition and to encourage the residents to express their concerns or worries. Although this was a form of continuous assessment, if a resident required a detailed assessment or section under the Mental Health Act they would be transferred to the Acute Assessment Centre at St Pancreas. This had not happened since the opening of the Centre. A consultant in the acute hospital would visit his patients daily.
(6) A doctor employed by the Appellant visited the residents on a daily basis. His function was to deal principally with secondary ailments not connected with the dementia. The doctor was performing the role of a GP rather than administering to the residents' mental health. If the residents required an operation they would be transferred to a local NHS facility. Drugs were administered to the residents but generally these were for the secondary ailments not the dementia.
(7) Our findings of fact on the residents and the regime were not just based upon the current arrangements for the Butterworth Centre but were firmly supported by the evidence about the intended use for the Centre.
Our conclusions on the Findings of Fact
(1) Unqualified nursing staff were supervised at all times by qualified nurses. The significance of this fact was severely limited by our findings on the actual role of the nurses and that the supervision was necessary to meet the line management requirements of the NHS and health and safety considerations rather than to administer treatment.
(2) A consultant psychiatrist (0.2 whole time equivalent) had been allocated to have overall charge of the programme of care. Although this clearly involved the consultant exercising his professional skill, the substantive exercise of his skill was carried out away from the Butterworth Centre. Assessment for admission, detailed assessments of the residents' deteriorating condition and potential sectioning of residents under the Mental Health Act were to be carried out at the Acute Assessment Centre at St Pancreas NHS Hospital not in the Centre.
(3) A junior doctor from the Hospital daily attended upon the residents. We concluded that this was akin to GP service attending a person in their home. It formed part of the new care programme described by the Chief Executive to improve the general health and quality of life of the residents. The services provided by the junior doctor were ancillary to the provision of accommodation to the residents.
Whether the Appellant was the Intended User of the Butterworth Centre?
The submissions of the Parties
Our Findings of Fact
(1) The Appellant did not have the expertise internally to run the clinical services for the Centre.
(2) The Mental Health Trust looked after the residents at Athlone House The residents would, therefore, experience no break in their care when they transferred to the Butterworth centre which was important for their continued well-being.
(3) The partnership with the Mental Health Trust defused potential criticism from the local community of the Appellant about its motives for providing publicly funded health services. The Appellant could demonstrate by the partnership that its prime concern was to give quality care to the residents not simply to make a profit.
Our Conclusions on the Findings of Fact
Our Decision
MICHAEL TILDESLEY
CHAIRMAN
RELEASE DATE: 29 June 2005
LON/04/780