United Kingdom VAT & Duties Tribunals Decisions

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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> St Andrews Property Management Ltd v Revenue & Customs [2007] UKVAT V20499 (30 November 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20499.html
Cite as: [2007] UKVAT V20499

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St Andrews Property Management Ltd v Revenue & Customs [2007] UKVAT V20499 (30 November 2007)

20499

VAT – zero rate – Sch 8 Group 5 – building intended for relevant residential purpose - home or institution? – yes – appeal allowed.

MANCHESTER TRIBUNAL CENTRE

ST ANDREWS PROPERTY MANAGEMENT LIMITED

Appellant

and –

HER MAJESTY'S COMMISSIONERS OF

REVENUE AND CUSTOMS

Respondents

Tribunal: Richard Barlow (Chairman)

John Brown CBE, FCA, CTA.

Sitting in public in Northampton on 26 and 27 September 2007.

Andrew Hitchmough of counsel instructed by PriceWaterhouseCoopers Legal for the Appellant.

Aidan Robertson of counsel instructed by the General Counsel and Solicitor to HMRC for the Respondents.

© CROWN COPYRIGHT 2007


 


DECISION
1. This appeal concerns a decision contained in a letter dated 10 August 2005 by which the respondents ruled that supplies of construction services to the appellant did not qualify for zero rating for VAT. The supplies in question amount in value to over ten million pounds and were made in connection with the construction of a facility (to use a neutral term) called Malcolm Arnold House at the St Andrew's Hospital site in Northampton. We use the term St Andrew's Hospital as convenient shorthand for the site as a whole and because that is how it is known.
2. St Andrew's Healthcare is a charity, the history of which dates back to 1838 when the Northampton Asylum was established. The site occupied by the charity is extensive and includes a number of buildings set in parkland which are used for various purposes. There is a golf course and swimming pool within the grounds. As a successor to the asylum St Andrew's Healthcare now provides health and care services including specialist treatment for patients with mental health problems, head injuries, dementia sufferers and the like.
3. The appellant is a company owned by the charity and it operates as a property owner and developer in connection with the charity's activities.
4. Malcolm Arnold House, to which this appeal relates, is a purpose built building within the St Andrew's Hospital site which is used for the purpose of accommodating and treating young people who have both learning difficulties and challenging behaviour. Challenging behaviour in this context includes physical aggression to others, self harm and sexually inappropriate behaviour.
5. The appellant claims the construction services supplied to it when Malcolm Arnold House was being built are supplies which are zero rated under the following provisions of the VAT Act 1994:

"Schedule 8 Group 5

The supply [of construction services] in the course of the construction of –

(a) a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose …

…

Note

(4) Use for a relevant residential purpose means use as –

…

(b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of … disablement … or past or present mental disorder;

…

(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 …

Note

(5) 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".

6. The appellant relies upon both paragraph (b) and (g) in the definition of relevant residential purpose.
7. In respect of paragraph (b) the appellant relies upon three arguments. First, the paragraph refers to a home or institution not in any organisational sense, focussing upon the organisational structure or nature of its owner or operator, but rather on whether the building itself can be described as a home or institution. Secondly and in the alternative, even if "home or institution" is to be construed in an organisational sense, zero rating is not restricted to a case where the entire institution is built and a building which forms part only of the home or institution can still qualify. Thirdly, Malcolm Arnold House is in fact a home in its own right.
8. The respondents argue that a building which is part only of a home or institution, in the organisational sense, cannot qualify for zero rating unless note 5 applies (which applies only where several buildings are constructed at the same time). They also argue that zero rating of the construction of Malcolm Arnold House is disqualified by the exception for a hospital or similar institution.
9. The facts of this case are not in dispute, in the sense that none of the appellant's evidence was challenged by the respondents as untruthful, but in analysing the primary facts the parties asked the tribunal to reach different conclusions. We heard evidence from Dr Philip Sugarman FRC Phsyc who is the medical director of St Andrew's Healthcare and its chief executive as well as being a board member or director of several national and regional bodies outside the St Andrew's Healthcare organisation. He is also a director of the appellant. We also heard evidence from Mr Nigel Blackham FCA who is a director and company secretary of the appellant.
10. The facts are as follows.
11. Malcolm Arnold House was purpose built as a secure building which houses up to 40 young people who are referred to it because they suffer from learning difficulties and challenging behaviour. The young people are housed full time in four wings at Malcolm Arnold House, two of which are for those up to 17 years old and two for those who are 18 or over. All the young people are in need of specialist care and have been referred there by medical professionals. A proportion of them suffer from epilepsy and/or autistic personality conditions. Their problems are mostly not related to mental illness.
12. Learning difficulties are a lifelong condition which is not a mental illness and is not treatable. Challenging behaviour cannot be successfully treated in purely medical terms. Drugs can be used to control such behaviour but that does not help the person concerned to control their behaviour without the drugs. At Malcolm Arnold House a method of care is given which attempts to address challenging behaviour in a holistic way, recognising that containing behaviour can teach a person the pointlessness of negative behaviour while at the same time seeking to improve self image and promoting skills so as to reduce frustration. Teaching life skills that most young people would take for granted is part of the treatment given. Staff are with the residents all the time and use interaction with them to encourage appropriate behaviour. As Dr Sugarman put it - it's not rocket science, we just do what we find works best (which is not to underestimate the skill of those giving the care). Mental health care in any event always uses a number of different approaches including several different types of therapy and social interventions and is not all medically based.
13. Although some of the staff at Malcolm Arnold House are medically qualified most of the work they do with the young people is work that could be done by staff without formal medical qualifications and there is an increasing use of such staff. At present two thirds of the staff have no formal medical qualifications.
14. If any of the young people have physical medical conditions they are referred to a GP or general hospital as necessary. Only the most basic medical equipment is kept on site. The drugs bill per resident per year at an acute mental hospital is three times as much as for the St Andrew's Hospital site as a whole (which reflects the fact that the patients on the site as a whole do not all have acute conditions). The drugs bill per patient at Malcolm Arnold House is a third of that at the St Andrew's Hospital site as a whole. Such drugs as are given could be administered by the residents' parents if they lived at home and do not need to be administered by medically qualified staff.
15. Malcolm Arnold House is a secure building. Residents have their own rooms and there are classroom areas and teaching kitchens for training the residents in self care. There is an enclosed garden and an area for playing games. Residents are not allowed to leave without permission. They are not there voluntarily. All have been committed under one or other of the provisions of the Mental Health legislation. They stay for long periods. The average is nearly three years.
16. The residents at Malcolm Arnold House have no other home address while they are there. They use the swimming pool and a café facility on the St Andrew's site, once they are considered able to leave the building itself, and progress on to trips to the town under supervision and eventually unsupervised where the therapy is successful. At the end of their stay most move on to other forms of supervised life in publicly funded homes or institutions.
17. Malcolm Arnold House is self contained and physically separate from other facilities at the St Andrew's Hospital site. It is managed and run separately from the other elements of St Andrew's Healthcare's activities. It has its own staff, finance and management. It even has its own separate power supplies.
18. We now turn to the legal issues.
19. Item 2(a) which is the relevant provision, quoted at paragraph 5 above, refers unequivocally to the construction of "a building" which is intended to be used for a relevant residential purpose, not to the construction of an institution or a home. The first focus of the provision is therefore undoubtedly on the building and apparently the building as such.
20. In Note (4) the reference to a home or an institution could be taken to refer to something other than the building but in context it should be remembered that the zero rating is for the construction of a building intended for use solely for a relevant residential purpose. Although the intention is that of an organisation and clearly the building cannot itself have any intention it is the intended use of the building which is in issue. In Note (4) the wording is "use as" a home or other institution but it is still use of the building that is in issue.
21. We see no real difficulty, giving the words used in the legislation their natural meaning, in holding that as long as the building in question is, as a matter of fact, a home or other institution then it qualifies, in principle, for zero rating.
22. The real issue is therefore simply one of giving a meaning to the words "home" or "other institution". The word "other" implies, at least to some extent, that the home must be an institution. In the Concise Oxford Dictionary the normal meaning of the word "institution" includes both "an organisation for promotion of some public object" and "building used by this" and in the Collins English Dictionary we find "an organisation or establishment founded for a specific purpose such as a hospital, church, company or college" and "the building where such an organisation is situated".
23. We are familiar with such expressions as "he went to live in an institution" "they sent him to an institution".
24. The case of a home is even clearer. The word "home" is often used to mean a place where a group of people live together in some sort of organised group, usually organised by a third party. Good examples are children's homes or old people's homes. It is a perfectly natural meaning of the word home to use it in this context as referring to the building and to what is done there without reference to who or what organisation owns or runs it or whether there may be other activities carried on by the organisation. For example, in ordinary language an old people's home is a home whether or not it is run by the Council or a profit making organisation and whether or not the operators own one or more such buildings.
25. The respondents argue that if zero rating had been meant to apply to part of a home or an institution that could easily have been made clear. Although that is true, it is equally possible that the draftsman thought that, as the building is what is in issue, it is clear that it is only necessary to decide whether the building is a home or institution, giving those words a normal meaning and that, if it is, it makes no difference whether the organisation that owns or operates it has other buildings or not. For example, suppose an organisation that runs a home for disabled people in one part of the country builds a separate home in another part of the country. What would be the logic behind legislation providing that the second home would not be zero rated but the first one would be?
26. The respondents argue that Note 5 would be unnecessary unless their interpretation is correct and that its purpose is to avoid the consequence that they say flows from the correct interpretation of Note (4), namely that, as the building in question must be a home or institution in the organisational sense, either of two or more buildings that constitute the home or institution would never qualify for zero rating without note (5) because they would not be a home or institution, only part of a home or institution.
27. We do not agree. The wording of note (4) could be taken to apply only to "a building", meaning a single building as a building, which is an entire home or institution. That could be argued to follow from the fact that it is the building that has to be the focus of entitlement to zero rating. The rule that the singular includes the plural might be thought insufficient to avoid that interpretation. It would be absurd to allow zero rating for a home built in one building but not for what would be essentially the same home where it happened to be in two or more buildings. The need for Note (5) can therefore be equally well taken to indicate, or at least recognise, that the focus is on the building and not the organisational structure of its owner or operator and is there only to avoid the absurdity we have just mentioned. In that sense it supports the appellant's interpretation rather than undermines it.
28. It might be argued to the contrary that Note (5) leaves a possibility of an illogical result, on the latter interpretation, in that a home or institution built in two or more buildings at different times should perhaps be in the same category as one built in the same buildings at the same time. But there would be a problem in such a case because there could be a period of uncertainty after the first building was built before it could be known what would be built later and whether it would qualify. That may be the reason why that situation is not covered.
29. The respondents rely upon Riverside School (Whassett) Ltd –v- Commissioners of Customs and Excise (decision number 13170) in which Mr Simpson held that a classroom block, separate from the other parts of a residential school and built at a different time, were not part of the school as an institution. In that context he said "[the classrooms] are thus intended to be used merely as part of a home or other institution and not as the home or institution itself". Whilst that was no doubt a correct holding in the context of that case it goes too far to say that Mr Simpson was thereby holding that only where a building constitutes the whole of an institution, in the organisational sense contended for by the respondents in this case, does it qualify for zero rating.
30. Mr Hitchmough relied less strongly on the argument that Malcolm Arnold House is an institution than that it is a home and we agree that the case is stronger so far as "a home" is concerned. There is no factual basis at all for saying that it is part only of a larger home. The whole of St Andrew's Hospital is not a home in the organisational or any other sense.
31. There is an argument for saying that Malcolm Arnold House is part of a larger institution in the organisational sense, and indeed that would be correct, but we hold that on the interpretation of the provisions which we have held to be the correct one it is an institution in its own right as a building and that is enough for it to qualify for zero rating.
32. Our holding is that Malcolm Arnold House is a complete and separate home whether looked at in the organisational sense, or as a building in its own right, and that it is also an institution, at least looked at as a building in its own right.
33. For the same reasons, the supplies were zero rated under Note (4)(g) as well as 4(b) as it is the sole residence of all its residents. That provision only applies to the building as an institution not as a home.
34. We do not agree with the respondents that Malcolm Arnold House is a hospital or similar institution. We also note that the exception at the end of Note (4) refers to an institution which is similar to a hospital but not necessarily to the other buildings referred to in Note (4); such as residential accommodation, a hospice or a home. Whether this recognises that such places (e.g. a home) must also be institutions before they can qualify for zero rating or whether it implies that they can always be taken not to be a hospital or similar to a hospital is unclear. In view of our findings below, it is unnecessary for us to reach a conclusion about whether the exception means that a home will never be a hospital in this context.
35. "Hospital" is not defined in this context in the relevant legislation and the word must therefore be given its normal meaning. Our findings of fact in paragraphs 11 to 15 above lead us to conclude that Malcolm Arnold House is not a hospital in any ordinary meaning of that word. We visited the building and saw for ourselves the décor and the activities the residents and staff are carrying out there and their way of life. It is particularly relevant in our opinion that the care given is mostly not medically based and that the residents are there for long periods rather than for acute admissions, as would be more normal in a hospital. The reason why the residents are there is also relevant and is not suggestive of a hospital admission. Hospitals do not normally teach life skills and address behavioural problems.
36. The respondents submitted that the residents are admitted to Malcolm Arnold House because they need medical treatment not because they need a home. We find that they are admitted for neither of those reasons. They need care because of disablement or mental disorder but that care is not medical treatment. The legislation does not require that, in order to qualify for zero rating, the home provided for a person must have been provided because that person needed a home. It is enough that it is a home in fact.
37. The respondents did not argue that the care needs of the residents at Malcolm Arnold House were not because of disablement or mental disorder. We assume that the respondents accept that mental disorder includes behavioural difficulties not amounting to a mental illness as such and we agree that that is the correct approach.
38. How far an institution or home must resemble a hospital before it is a similar institution is a matter of judgement, as the legislation does not set criteria for making a decision about that. It suffices for us to say that taking all the evidence into account we have reached the conclusion that Malcolm Arnold House comes nowhere near to being a home or institution that could properly be described as similar to a hospital.
39. The appeal is therefore allowed. The supplies were properly zero rated.
40. The appellant applied for costs and we make an award of costs to be determined on a standard basis by the appropriate authorities at the High Court, if not agreed between the parties.
CHAIRMAN RELEASED: 30 November 2007

MAN/05/0638