NHS Ayrshire & Anor v Revenue and Customs (VAT ZERO-RATING - whether construction services and materials in the course of construction of part of a National Secure Adolescent Inpatient Service building were subject to) [2025] UKFTT 502 (TC) (01 May 2025)

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	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> NHS Ayrshire & Anor v Revenue and Customs (VAT ZERO-RATING - whether construction services and materials in the course of construction of part of a National Secure Adolescent Inpatient Service building were subject to) [2025] UKFTT 502 (TC) (01 May 2025) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09511.html Cite as: [2025] UKFTT 502 (TC)

DECISION

Introduction

1. The Appellant appealed against the Respondents' decision to refuse non statutory clearance to treat the construction services and materials in the course of the construction of part of a building for a National Secure Adolescent Inpatient Service ("NSAIS"), later named 'Foxgrove' as subject to zero rating for the purposes of Value Added Tax (VAT).

2. NSAIS is a secure unit constructed in the grounds of Ayrshire Central Hospital.

3. The Appellant seeks partial zero rating in relation to what it considers is a distinct and separate part of NSAIS, referred to by witness Fraser Bell as the Accommodation or Bedroom Wing ("the Bedroom Wing"), which is to be used only for a Relevant Residential Purpose ("RRP") in terms of Schedule 8, Group 5, Item 2 (a), Notes (4 ) and (10), Value Added Tax 1994 ("VATA").

4. The Respondents maintain that the zero rating in terms of Notes (4), and (10) is not available because NSAIS is a "hospital or similar institution".

Background

5. On 11 February 2020, the Appellant sought non statutory clearance to treat building costs for NSAIS as zero-rated and on 9 November 2020, clearance was refused.

6. On 26 February 2021, the Appellant requested a statutory review of the decision and on 11 June 2021, the Review Conclusion Letter upheld the decision.

7. On 8 July 2021, the Appellant appealed the decision to the First-tier Tribunal and on 9 January 2022, the Appellant submitted further grounds of appeal.

8. The hearing took place over two days and was heard by the tribunal ("the tribunal/we/us/our") with the ability for it, as well as the parties, to receive evidence and submissions and question the parties to establish the relevant facts.

9. On the first day of the hearing, the tribunal raised the issue of whether there was any relevance to the fact that all persons aged between 12 and 17 years of age, referred to in the Criminal Procedure (Scotland) Act 1995 ("the 1995 Act") as "persons" and in the Mental Health (Care and Treatment) (Scotland) Act 2003 ("the 2003 Act") as "patients" (hereinafter, for simplicity, collectively referred to as "patient(s)"), were sent to NSAIS under the mental health legislation which referred to treatment in a hospital and requested submissions. (The 1995 Act and 2003 Act are collectively hereinafter referred to as "the mental health legislation")

10. On the second day of the hearing both parties made submissions on this point but given the limited time they had available, the tribunal agreed to allow them to make written submissions on this, and only on this, and said it would issue written directions allowing for a 14-day period for the Appellant to make submissions, with the Respondents being given 7 days in which to respond.

11. The Tribunal Judge contacted HM Courts and Tribunals Service ("HMCTS") on 15 December 2024, setting out the directions that were to be issued.

12. These directions were not issued by HMCTS until the Tribunal Judge chased them up and asked HMCTS on 15 January 2025 whether there had been any responses.

13. The Directions were then issued on 17 January 2025 but by that time the Appellant had, without awaiting the Directions and contrary to what had been requested at the hearing, submitted not only submissions on the mental health legislation issue but also 'Final written submissions'. As the latter had not been requested at the hearing, the Respondents then requested additional time in which to respond and in any event provided a response.

14. In accordance with the Overriding objective of the tribunal at Rule 2 of The Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009, and as the purpose of the two day hearing was to give the tribunal, and the parties, the advantages of an oral hearing rather than a hearing based on written submissions, the Tribunal will not consider the final written submissions from the Appellant and the subsequent response from the Respondents, and will rely on the skeleton arguments, evidence and oral submissions at the hearing, except for the submissions requested at the hearing and referred to in the Directions issued on 17 January 2025.

Point at Issue

15. The substantive issue before the tribunal is to determine whether NSAIS is a hospital or similar institution in which case supplies are not zero-rated , or whether the Bedroom Wing, which surrounds, on three sides, a therapy court and which was marked in yellow on a site plan ("the yellow zone/accommodation wing") submitted to the tribunal, is a distinct and separate part of the building designed or intended to be used solely for a RRP, in which case zero rating is granted.

Burden of Proof

16. The burden of proof is on the Appellant to show that the Bedroom Wing of NSAIS qualifies for zero rating on the basis that it is intended for use for a RRP.

Standard of Proof

17. The standard of proof is the ordinary civil standard, on the balance of probabilities.

Legislation And Authorities

Legislation

18. Under VATA Schedule 8 Group 5 Item 2: zero rating applies to

2. The supply 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 or a relevant charitable purpose; or

(b) any civil engineering work necessary for the development of a permanent park for residential caravans, of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

("Item 2").

19. VATA Schedule 8 Group 5 Item 2 Note (4) states:

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

(a) a home or other institution providing residential accommodation for children;

(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;

(d) residential accommodation for students or school pupils;

(e) residential accommodation for members of any of the armed forces;

(f) a monastery, nunnery or similar establishment; or

(g) an institution which is the sole or main residence of at least 90 per cent of its residents,

except use as a hospital, prison or similar institution or an hotel, inn or similar establishment.

("Note 4").

20. VATA Schedule 8 Group 5 Item 2 Note (10) states:

(10) 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.

("Note 10").

21. S.329 Mental Health (Care and Treatment) (Scotland) Act 2003 states:

"hospital" means—

(a) any health service hospital (as defined in section 108(1) of the National Health Service (Scotland) Act 1978 (c. 29));

(b) any independent health care service; or

"hospital direction" means a direction made under section 59A of the 1995 Act [the Criminal Procedure Scotland Act 1995].

S.108(1) National Health Service (Scotland) Act 1978 states:

"hospital" means—

(a) any institution for the reception and treatment of persons suffering from illness,

(b) any maternity home, and

(c) any institution for the reception and treatment of persons during convalescence or persons requiring medical rehabilitation, and any institution for providing dental treatment maintained in connection with a dental school, and includes clinics, dispensaries, and out-patient departments maintained in connection with any such home or institution, and "hospital accommodation" shall be construed accordingly;

HMRC Guidance

22. VATCONST15200

23. VATCONST15250

24. VATCONST15370

25. VATCONST15550

26. VATCONST15610

27. VATCONST15620

Public Notice

28. VAT Notice 708 (Extract of Para 14.6)

Authorities

29. HMRC v Fenwood Developments Ltd [2005] EWHC 2954 (Ch) ("Fenwood")

30. Pennine Care NHS Trust v HMRC [2016] UKFTT 222 (TC) ("Pennine")

31. General Healthcare Group Ltd [2001] Lexis Citation 636 (VATD 17129) ("GHC")

32. Vodaphone Cellular v Shaw [1997] STC 734 ("Vodaphone")

EVIDENCE AND FACTS

33. The written evidence before the tribunal comprised a Document Bundle of 589 pages; an Authorities Bundle of 53 pages; a letter from the Respondents to the Appellant dated 13 November 2023 ("13 November letter"), skeleton arguments for both parties; and an uncoloured site plan ("the blank site plan")

34. The tribunal was also given a site plan on which the different areas were designated with different colours principally a yellow zone comprising the Bedroom Wing, a green zone ('administrative') and a blue zone ('education and clinical care'), (all collectively "the Building Complex").

35. In addition, we had the relevant parts of the post hearing written submissions as directed by the tribunal.

36. The tribunal heard oral evidence from Stuart Mackenzie ("SM"), who is the senior manager for Child and Adolescent Mental Health and Community Eating Disorders at NSAIS and who has extensive clinical and managerial experience, and from Fraser Bell ("FB"), Assistant Director Programmes, NHS Ayrshire and Arran Health Board, who is a registered architect and is responsible for managing capital projects, all property related matters and the Board's capital investment plan.

37. Both witnesses were credible and were examined and cross-examined by the Appellant and Respondents.

2019 Business Case

38. The NSAIS Outline Business Case dated June 2019 ("the Business Case") proposed a medium secure adolescent inpatient service on the site of the Ayrshire Central Hospital campus in Irvine, at an initial cost of £9.86 million which anticipated a VAT recovery of £172,565. The project had been approved by the Scottish Government in June 2018 to enable the vision set out in the "Mental Health Strategy 2017-2027". Its aim was to "improve the outcomes for young people who are seriously unwell and at risk to others by offering modern services and care within Scotland".

39. The preferred option was to build a new 12 bedroom medium secure facility and avoid young people continuing to be referred to secure adolescent mental health facilities in England as none existed in Scotland. This would also have the advantage of making family members' visits easier as the aim is to involve them where possible in the programme of care and treatment and to recognise the importance of maintaining contact with family.

40. The Business Case stated that the facility would be for young persons aged from 12 to 18 years at the point of referral, who were liable to be detained under the relevant mental health legislation, and who presented a significant risk to others either after conviction or in certain circumstances a finding of insanity.

41. Although an A3 plan of the Building Complex was provided to the tribunal it is not attached to this decision as deciphering the descriptions of each part of the Building Complex was already extremely difficult and further reduction to A4 or even further reproduction would likely make this task even more difficult.

42. Security to the Building Complex is assisted by the erection of a large security fence and security corridor around parts of the Building Complex which have windows or other access from areas which are routinely accessible to patients.

43. The Business Case stated that:

"One of the key design drivers was the separation of the noisy/public and quiet/private spaces, both internally and externally.... In order to achieve a simple zoning of activity, the design is arranged as two stand-alone elements.... The education suite is distinctly separate from the living areas. The central area helps the patient to adjust from one situation or experience to another.... The 12 bedrooms are configured in a layout that allows for different ward configurations to assist with fluctuations in admissions. Individual quiet rooms for each cluster of 4 bedrooms are provided. The positioning of bedrooms around a single sided corridor maximises sightlines for staff observation and a pleasant outlook into a green space. As a secure inpatient service, the aim of the design is to provide a safe and therapeutic environment, to contain, soothe and de-escalate the deep distress so that patients can receive the care required to enable them to recover.... Additional internal facilities include spaces to learn daily living skills such as a kitchen and laundry. A large central occupational therapy/activity/games area gives direct access to the courtyards and offers a choice for individual or groups depending on the activity. The multi-functional dining and activity area has access to usable landscaped area".

And

"The bedrooms are built around a therapy courtyard which can help to create a quieter refuge from the hustle and bustle of other areas."

The section on the scope of building works referred to 12 ensuite bedrooms; associated living, therapy, education staff areas; a range of external areas for relaxation and recreation; and sports facilities, all enclosed within a secure perimeter.

2021 Business Case

44. A further full business Case dated 29 March 2021 ("2021 business case") stated there had been no change to policy/procedure and/or external factors, no change to the bed numbers or service model, and no change to the scope of the project but changes had been incorporated into the final design to improve all aspects of security.

45. Specifically reception was reconfigured to create a security function and bedrooms 4 and 9 en-suites were re-designed to improve 'maintenance accessibility'. The estimated cost per bed per annum equated to approximately £418,000 but potential for significant revenue savings and evidence of value of money was identified including shorter inpatient stays, care and support close to home and closer proximity for visits by relatives.

46. The 2021 business case identified a revised capital cost of £11.778m inclusive of an expected VAT recovery of £207,607.

Memorandum of Procedure on Restricted Patients

47. We were provided with a Memorandum of Procedure on Restricted Patients dated May 2010 ("the Memorandum") comprising 172 pages which is "an essential reference document for those who are involved with the management and care of patients subject to a compulsion order with a restriction order, hospital direction or a transfer for treatment direction; that is patients who are subject to special restrictions."

48. The Memorandum sets out that patients at NSAIS are mostly detained there under section 57A, of the 1995 Act which relates to a Compulsion Order ("CO") made by the court at the time of disposal following conviction or acceptance of a guilty plea; under section 57(2)(a) and (b) of the 1995 Act being a Compulsion Order and Restriction Order ("CORO") made by the court following a finding of insanity in bar of trial or acquittal on the grounds of insanity: and under section 59 of the 1995 Act, a Restriction Order ("RO") made by the court at the time of disposal and which is added to a Compulsion Order (under section 57A) which means the measures specified in the compulsion order will be without limit of time (all collectively "Court Orders").

49. A hospital direction made in addition to a prison sentence is not applicable, under section 59A of the 1995 Act for NSAIS patients as it does not apply to children. There may also be transfers between hospital and prison and cross-border transfers under sections 210 and 290 of the 2003 Act.

50. The aim of these provisions is to meet Scottish Ministers' statutory role in respect of the management of restricted patients to provide an additional layer of scrutiny as regards the long-term protection and security of the public, whilst at the same time delivering appropriate care and treatment to patients.

51. The operation of the Care Programme Approach, which involves risk assessment by a multidisciplinary team ("MDT"), is mandatory for restricted patients.

52. The aim and purpose of NSAIS for patients under Court Orders is to medically treat acute mental illness and conditions where the patients are considered for admission if their risk and needs cannot be managed in a less secure or community setting. Accordingly, a trigger event might include contact with criminal justice. Examples given were of a girl with psychosis who may have been given help at her family home for some time but then seriously tried to kill her neighbour and had to be cared for in a locked facility and a boy with autism who set fire to his children's home and was diverted from custody by admission to NSAIS.

53. All patients of NSAIS will have mental health disorders and in most cases will have committed a violent crime or crimes and be detained by a Court Order. The treatment provided within the facility in most cases will be with a view to rehabilitation to the point where the patient is able to be reintroduced into society.

54. Accordingly, the aim of NSAIS is to provide 'medical treatment in accordance with Part 16 of the 2003 Act' and enable its patients to return to a non-secure or less secure mental health or community setting or a prison. Section 329 of the 2003 Act defines medical treatment as:

"Medical treatment means treatment for mental disorder; and for this purpose "treatment" includes - (a) nursing: (b) care; (c) psychological intervention; (d) habilitation (including education, and training in work, social and independent living skills); and (e) rehabilitation (read in accordance with paragraph (d) above) ."

55. A document entitled "a typical day" provided an outline of a working day for a member of NSAIS staff which identified breakfast beginning at 0800; schoolwork beginning at 0900 for those able to attend school, where applicable, but otherwise a ward based activity which continued until lunch at midday. A similar programme would take place with schooling or ward based activity between 1300 and 1515. Between 1515 and 1700 there would be groups, education, individual work, escort, care planning, family visits, sports activities and risk assessments. At 1700 dinner is given and at 1800 there is "access to own rooms, games, activities, one-to-one time, visiting, and staggered bedtimes from 2100 to 2200."

Fraser Bell witness evidence

56. FB commenced his employment with the Health Board in February 2020 at which time the design of NSAIS had been substantially completed and the project was being tendered by the Principal Supply Chain Partner ("PSCP"), who was responsible for both the design and the construction activities.

57. The design specification was subsequently developed through engagement with project stakeholders which resulted in a final architectural design. This resulted in an amendment being required to the original specification and additional costs of £2.5 million. None of these amendments altered the actual site plan from the original design which was submitted for approval in April 2021.

58. Work commenced on the site in October 2021 with an expected completion date of March 2024 but because of the amendments required this is now likely to be June or July 2025.

59. NSAIS was developed to create a unique, national facility, with a bespoke architectural design tailored to meet the specific needs of the patients. FB described the site as having three zones, a yellow zone for accommodation/Bedroom Wing, a green zone for shared areas including the areas for plant, facilities management, unit entrances, the staff operated kitchen and all staff only areas, and a blue area for clinical or education areas including areas for appropriate mental health care or treatment, therapy or security as well as age appropriate educational areas.

60. As a consequence of the Court Orders, all zones at NSAIS are controlled by overarching security arrangements and there is a "progression strategy" to ensure the safety of patients, staff and visitors through a hierarchy of privacy from "public" through to "private" areas. Public areas are defined by areas which are accessible to visitors to the facility, including educational and therapy staff.

61. All zones are covered by active security systems and CCTV systems except the bedrooms in the Bedroom Wing as it is an integral aim that patients who are resident can have their own rooms which they are permitted to decorate.

62. As a result of their being different sexes and having mental disorders and the need as far as possible to separate some patients from others, each patient has his/her own room in the Bedroom Wing which they can lock and unlock with a thumbprint activated lock.

63. This allows only a patient to enter his or her room unless she or he decides to admit someone but notwithstanding this, the nursing staff, part of the MDT, can override these locks by use of a card key.

64. Within each room the floor area has different colours which represent "zones" which the staff will, except under exceptional circumstances, respect and which provide a distanced and a designated area for each patient within their room. This provides a useful basis for the interactions between the nursing staff and patients.

65. Each room has a Kingsway door, which is a substantial door with a glass panel with a louvred type blind which is operated by a key. Patients in their rooms can have this blind open or close it so that it is opaque. On the external side of the door from the bedroom the nursing staff can override the key so that they can see into the room and in addition they can activate a discrete light so that they can observe patients through the Kingsway doors when the rooms are otherwise in darkness.

66. Access to the Bedroom wing for patients is only available via the semi-public areas and, with appropriate authority, through the secure doors.

67. The education wing is in a separate wing of the Building Complex which is deliberate to encourage separation between "public areas" and the Bedroom wing which the Appellant says operates as the patients' homes. FB said this is to encourage a sense of "journey" from education to reception areas and provide separation from private sleeping areas, and that a similar approach has been taken for the therapy zone.

68. On a pragmatic basis it allows the locking down of public areas of the Building Complex "out of hours". FB said that it is "expected the Bedroom wing will be locked down and contained 'out of hours' as a home unit, separate from the public zones."

69. FB stated that the Bedroom wing has been provided with a private, external secure courtyard for recreational purposes that can only be accessed from the corridors within the Bedroom wing itself. There is no access from public areas and the design of the space focuses upon contemplation and relaxation rather than formal structured recreation and sports. This provides the central focus of the Bedroom wing as a pseudo-independent unit within a larger facility.

70. FB further stated that within the Bedroom wing there are two social rooms which will encourage socialising between patients within the facility out with individual bedrooms. These were described on the plans as 'patient lounge' and 'quiet lounge'. A small part of the Bedroom wing was redesignated in the 2021 Business case as an 'External store' and is not considered by the Appellant as within the yellow zone under appeal but is attached to the Bedroom wing and no other part of the Building Complex.

71. As a result of Covid and other important factors, the contract was approved in April 2021 but then subject to a further review by a new review body, NHS Scotland Assured. This body did not exist until July 2021 and so the construction took place in parallel with this further review.

72. FB confirmed that construction began on 20 October 2021 which allowed the enabling works for certain parts of the work to continue. NHS Scotland Assured were able to look at the project in September 2021.

73. He confirmed that some of the statements in the Business case and the 2021 Business case were not reviewed or challenged to reflect the actual operational use that the prospective NSAIS team foresaw for the facilities. He was in charge of a number of different teams with different responsibilities but his primary involvement was to drive the tender process.

74. FB stated that the major difference between the Bedroom wing and the other parts of the Building Complex was that the former had no CCTV. In other parts of the Building Complex, the patients would also always be accompanied by member of staff.

75. The journey from a patient's bedroom to the dining room or to a therapy room is short and from one therapy room to the nearest bedroom the distance is no more than the length of one room..

Stuart Mackenzie witness evidence

76. SM is the senior manager responsible for a number of key areas of development delegated to him by the Project Director and Head of Mental Health services. He is supported by a Clinical Leadership team, which is made up of a clinical consultant forensic psychologist, a consultant forensic CAMHS psychiatrist, a service manager and the senior charge nurse.

77. SM stated that observations of patients take place every 15 to 20 minutes in the Bedroom wing and the MDT operate the unit on a 24-hour 365-day basis. In all other areas, the patients are escorted by a member of the MDT and in addition are covered by CCTV.

78. There are locked doors from other areas within NSAIS and the Bedroom wing and within the latter itself there are locked zones comprising a series of bedrooms with attached bathrooms and two lounges. It is necessary to separate individuals of different sexes or dispositions and, accordingly, access to a therapy courtyard, which is surrounded on three sides by the bedrooms, is only by patients when accompanied or when members of the MDT decide it is appropriate for selected patients.

79. SM stated that, except in exceptional circumstances, no medical treatment will be carried out in the Bedroom wing, which is very different from treatment in an ordinary hospital.

80. Patients will all have a named and associate nurse who will coordinate all aspects of their care, ensuring that there is a specific nursing care plan, up-to-date risk assessment and identified time for therapeutic interventions.

81. Each patient will be offered a range of interventions, specific to nursing care and treatment and in partnership with other professions within the MDT. These would include psychological interventions such as Cognitive Behavioural Therapy ("CBT"), direct interventions focused upon anxiety, depression or psychosis symptom management and may also include understanding behaviours associated with index offences, being offences which are determined at occupancy period level. [An index offence is the most serious offence for which a person is subject to Court Orders].

82. Patients will also receive medical treatment in the form of medication to treat their mental disorder.

83. The prevailing considerations in providing a caring environment for patients include Getting It Right For Every Child ("GIRFEC") which aims to provide levelling up for every child.

84. SM gave evidence that the bedrooms were not designed for therapeutic work because there was no CCTV nor were there interventions in a bedroom as there were too many variables. SM stated that the aim was to provide patients with a private space.

85. Each member of the NSAIS team is required to record any interventions and to do so in writing. These are then discussed by the MDT and then analysed to determine whether any changes need to be made to a patient's care plan.

86. SM stated that he did not believe that good nursing practice, which he equated with good communication, should be seen as an intervention but thought it might inform a discussion as to a patient's future care plan.

87. SM provided descriptions of interventions that nursing staff might have with a patient in her/his bedroom and the significance of the coloured areas of the floor for establishing boundaries. SM also stated that there was a mix of genders and of personalities and, accordingly, the emphasis was to keep each patient safe from others, and to keep the NSAIS staff and ultimately the public safe.

88. This is in part achieved by patients entering and exiting different areas of NSAIS based on when one door is opened, it is locked before another door is opened, in a system described as "air locks".

89. SM referred to the Business Case, and in particular to the section on Architecture which stated at section 2.6.4: –

"The proposed facility is surrounded by woodland to the northern side, the building form adapts to the shape of the site and directs views from within its main spaces to the surrounding landscape. One of the key design drivers was the transition between private and public spaces. The layout is designed to aid the separation of noisy/public and quiet/private spaces, both internally and externally, this is to allow different uses/activities to happen at the same time without interfering with each other.

In order to achieve a simple zoning of activity, the design is arranged as two standalone elements, with the main entrance acting as a threshold that highlights determined areas of transition.

The education suite is distinctly separate from the living areas, this is to allow for a similar routine to that of home to be continued during a young person's stay within the facility. The central area helps the patient to adjust from one situation or experience to another. It also provides visual and physical integration of the landscape and emphasises the location of the main entrance within the front facade.

The 12 bedrooms are configured in a layout that allows for different ward configurations, to assist with fluctuations in admissions. Individual quiet rooms for each cluster of 4 bedrooms are provided. The positioning of bedrooms around a single-sided corridor maximises sightlines for staff observation and provide a pleasant outlook into green space. As a secure inpatient service, the aim of the design is to provide a safe and therapeutic environment, to contain, soothe and de-escalate deep distress so that the patients can receive the care required to enable them to recover."

90. SM stated that in his view the uses of the Building Complex differed from those of the original architects' description of the property as two stand-alone areas of an education area and a living area based on what he considered were different usages. SM's views were against a background of him becoming involved after NSAIS had been constructed and which had then been adapted. One change was that there were only two 'quiet areas', not three, now labelled as a Quiet lounge and a Patient lounge.

91. SM did not consider that reflection by patients in their rooms following CBT sessions amounted to treatment, but he accepted that the provision of medication would continue for patients wherever they were including when they were in the Bedroom wing. SM believed that NSAIS had three separate parts being education, accommodation and clinical.

92. Patients who might be unable due to risk, illness or circumstances to leave the clinical environment to attend school will take part in lessons in their room space using technology available to them. In Bedroom wing only nursing staff will have direct access to patients.

93. Each eligible patient who is required to have 35 hours of education under the appropriate education legislation must have this provided by the local authority, in this case North Ayrshire Council, and, similarly, each patient will be registered with a local General Practitioner ("GP").

94. The Education zone also hosts some Activities of Daily Living, a Kitchen and Patient Laundry as well as education rooms, a gym and therapy rooms. This area is not freely accessible out with class hours unless planned and risk assessed.

Length of stay

95. The Appellant states that the average length of stay in a UK hospital (pre-Covid) was 'around six days' whereas the average length of stay expected at NSAIS will be 18-24 months and that NSAIS will be the patient's sole or main residence during that period.

96. The tribunal asked what the average stay was in a residential care home, but this information could not be provided, and for the basis of the population on which the UK hospital statistic was provided and in particular whether it included day cases including, say, Accident and Emergency units. This information was also not known.

97. Similarly, the estimate of the average length of stay at NSAIS is not yet known with any certainty because the facility has yet to open and, because it has a maximum age, will vary depending on the age at admission/detention.

Appellant's submissions

98. The Appellant seeks partial zero-rating of new build construction services in relation to the construction of the NSAIS in the grounds of Ayrshire Central Hospital. NSAIS is used neither as a hospital nor as a similar institution nor as a care home and its appeal is not brought on the basis that NSAIS is a care home or a prison.

99. The Appellant seeks the zero-rating of construction services in relation to the qualifying part of the Building Complex, being the Bedroom wing as a distinct and separate part of the Building Complex to be used solely for a RRP under Item 2(a) Group 5 Schedule 8 VAT Act 1994 and, if appropriate, apportionment between zero-rating and standard rating of the construction services under Note 10 Group 5 Schedule 8 VAT Act 1994.

100. It is accepted that the original non-statutory clearance application was for the zero-rating of the whole Building Complex but the position of the Appellant has been significantly modified over the intervening period and for the avoidance of doubt, zero-rating is now sought only for the qualifying part of the Building Complex which it says is the Bedroom Wing.

101. HMRC refused the Appellant's application on 9th November 2020 on the basis that NSAIS was used as a hospital (an exception under Note 4) and that decision was subsequently upheld in a Statutory Review on 11 June 2021.

102. HMRC later considered whether there may be part-qualifying use under Note 10 but subsequently also rejected that, also on the basis that NSAIS was wholly used as a hospital under Note 4.

103. The Appellant submits that a RRP is essentially about living accommodation and whether the accommodation is home for those who reside there, at least for the period of residence, and that is the case for the patients in the NSAIS.

104. The Appellant says that it is immaterial why a patient resides at NSAIS and that the Respondents have viewed and reviewed the matter in relation to 'purpose' rather than 'use'.

105. It is the patients' legal residence, they have their own bedrooms which they can personalise, they receive their mail there, they are treated by local GPs for general medical conditions, they are taught by Local Authority teachers; in essence, while in NSAIS they live in the Bedroom Wing as if it was their home (potentially for several years).

106. Crucially, and definitively, no medical treatment is carried on in the Bedroom Wing except in exceptional circumstances, which is fundamentally different to any accommodation to be found in a hospital where medical treatment is carried on routinely and as a matter of course in the accommodation, whether on a ward or in a separate room.

107. The Appellant submits that there are no authorities which specifically assist in relation to NSAIS or buildings like it; it is not a care home or similar to a care home, and it should be viewed separately on its own merits.

108. The Respondents' guidance VCONST15610 states that a distinct part of a building can be used for a RRP whilst another part can be used as a hospital or similar institution. The Appellant states that the different zones within NSAIS are parts of the same building. The reasons given for refusing partial zero rating contradict this. "Part of" in Note 10 should also be given its ordinary meaning without any additional restrictions which HMRC have sought to attach to it.

109. The Appellant considers that the length of stay for a patient is relevant to the definition of 'residential use' albeit not definitive.

110. The 13 November letter does not address the meaning of the statute or refer to the wording of the statute in coming to the Respondents' decision. The Appellant says it is irrelevant that NSAIS is a single institution and says that the Accommodation and Clinical Zones were built to be used together. This is the purpose of Note 10: to identify parts of the building which are used for a RRP, even though the rest of the building is not.

Note (4)(a)

111. The Appellant refers to Note (4)(a) concerning residential accommodation for children and says that there is nothing in this note or in Note 10 which supports the view that the patients reside at NSAIS because they are mandated to do so and disagrees with the Respondents' claim that the accommodation is for the purposes of receiving treatment.

Note (4)(b)

112. Similarly, the Appellant says that Note (4)(b) concerning the provision of residential accommodation with personal care by reason of a past or present mental disorder refers to personal care having a meaning appropriate to the category of the person in need. Parliament cannot have intended that to be confined to old-age or disablement.

113. The Appellant says that personal care for a patient in this context would include the teaching of life skills and guidance in accordance with GIRFEC. Providing residential care for patients by reason of mental disorder in part of the Building Complex falls under Notes (4)(b) and 10.

Note (4)(g)

114. The Appellant says that NSAIS is "an institution which is the sole or main residence of at least 90% of its residents".

Note (4)(d)

115. The Appellant says that whereas as one of the any appropriate definitions of a RRP in Note (4)(d), being residential accommodation for students or school pupils, does not stand in isolation, it supports the Appellant's view that the definitions under Notes (4)(a), (b) and (g) are met.

'Hospital'

116. There is no statutory definition of "hospital" in the VATA.

117. In relation to the definition of a hospital the Respondents refer to Fenwood at:

"[13] Before considering those three broad propositions it is convenient to refer to the submissions of counsel for Fenwood as to the meaning of the phrase "hospital or similar institution". He pointed out that the dictum of Denning LJ in Minister of Health v General Committee of the Royal Midland Counties Home for Incurables at Leamington Spa [1954] 1 Ch.530, 547 was based on statutory definitions of the words "hospital" and "treatment" in the National Health Service Act 1946, which are not to be found in the VAT Act 1994 and was a dissenting judgment anyway. He suggested that the focus of Note (4) in the context of Group 5 is on the intended use of buildings for residential accommodation, as opposed to short term occupation. He submitted that a hospital is a building used for treatment for the cure or amelioration of a medical condition as opposed to personal care; the former is likely to require short term occupation, the latter long-term residence.

[The Appellant says that the National Health Service Act 1946 did not and does not apply in Scotland; the definitions therein are not relied upon by the Respondents, but in any case relate to another jurisdiction.]

...

[16] Accordingly the starting point must be the ordinary meaning of the word "hospital". The relevant meaning given in the Shorter Oxford English Dictionary is "an institution for the care of the sick and wounded, or those who require medical treatment". In Collins English Dictionary it is "an institution for the medical, surgical, obstetric, or psychiatric care and treatment of patients". Chambers 21st Century Dictionary defines the word as "an institution, staffed by doctors and nurses, for the treatment and care of people who are sick or injured". The common element in all these definitions is the provision of medical treatment and care.

...

[18] In their normal meaning neither hospitals, prisons, hotels nor inns exist for the purpose of providing residential accommodation; nor are they normally occupied as residences by those who are accommodated therein. Thus the exceptions appear to me to be designed to exclude the specified institutions if and in so far as their use might actually come within the principal parts of the definition. Accordingly, it is necessary in each case to contrast the relevant paragraph of Note (4) with the relevant part of the exception. If, as is accepted in this case, the Dene is "a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of past or present mental disorder", then it can only be excluded if its use is as a hospital or similar institution. The contrast is between a home or institution providing residential accommodation with personal care for those who need it for the prescribed reason and an institution providing medical treatment and associated care, usually on a short term basis. Accordingly I accept the submission of counsel for Fenwood summarised in the last sentence in para 13 above as reflecting the proper construction of the relevant words in the appropriate context."

118. The Appellant submits that Fenwood should be read in the context of whether a care home is a hospital, rather than in the context of NSAIS, which is not a care home, nor similar to a care home.

Appellant's submissions on the Respondents' Contentions

119. HMRC contend that the NSAIS is not a building "intended for use solely for a relevant residential purpose..." within the definition at Note 4. Specifically, they say the facility is excluded from falling within the definition of having a "RRP" in that it is, by nature, a hospital and argue that "hospital" should be given its ordinary meaning and, as that concept is ordinarily understood, the core feature of a hospital is that it provides medical treatment and care.

120. The Appellant notes that a further characteristic of a hospital, given its ordinary meaning, is short term care as opposed to residential care.

121. HMRC say that central to the purpose of NSAIS is that diagnosis and treatment will be provided with a view to reducing and addressing patients' symptoms, and thus in their view, the NSAIS differs from residential institutions in that it exists to provide medical intervention.

122. HMRC contend that this intervention goes beyond the definitions of accommodation and personal care and as such the purpose of NSAIS does not fall within Item 2(a) of Group 5 Schedule 8 VAT Act 1994. HMRC:

a) accept that Note 4(a) would apply, but for the exception that NSAIS is used as a hospital, but the Appellant contends that Note 4(a) does apply because the NSAIS is part-qualifying, and the Bedroom Wing is not used as a hospital.

b) accept Note 4(b) would apply, but for the exception that NSAIS is used as a hospital. The Appellant contends that Note 4(b) applies because NSAIS is part-qualifying, and the Bedroom Wing is not used as a hospital. Also, personal care in Note 4(b) must mean personal care appropriate to the circumstances; the focus on personal care appropriate to old age or disablement is entirely too restrictive, personal care will have different meanings according to which element of Note 4(b) applies.

c) contend that Note 4(d) does not apply because the nature and purpose of the Building Complex is not a school. The Appellant says that there is a fully functioning school within the NSAIS and that the provision of education for the resident patients is part of the nature and purpose of the NSAIS; not a characteristic of a hospital given its ordinary meaning.

d) contend that Note 4(g) does not apply because the Appellant has not demonstrated that the Bedroom Wing will be the sole residence of 90% of its residents. The Appellant says that the patients are legally resident at NSAIS not at the Bedroom Wing.

123. The Respondents have considered whether any defined area of the Building Complex may stand alone as an area to be used for a RRP and argue that they have not identified such an area and state that the Appellant "does not appear to have made a fully detailed submission regarding positioning, proportions and use of the potential zones".

124. The Appellant subsequently submitted a fully detailed analysis regarding the separate zones and relevant percentages and in the 13 November letter the Respondents state:

"I do not agree with your interpretation of the guidance VCONST15610 that refers to mixed used buildings. Our view of the guidance is that this refers to circumstances where areas of the facility can be clearly separated by their purpose in relation to the Service Users (SU's) stay.

This is supported by the parts of the guidance which refer to clearly defined areas, with physical barriers or distance between them.

In the case of the NSAIS this unit is a single building, so there are no areas that can be defined as qualifying for RRP. SU's will be required to be residential within the NSAIS to receive treatment. There are no separate facilities within the building we must look at the building as a whole and what is being delivered within that building.

Unfortunately, HMRC cannot agree that the NSAIS has a clear mix of use between qualifying, non-qualifying shared use in relation to RRP. Therefore, I will be rejecting your request to apply zero rating to 39.97% to the NSAIS."

125. The Appellant says that the Respondents' references to "clearly separated" and "clearly defined areas, with physical barriers or distance between them" appear to be arbitrary restrictions. However, in the case of the NSAIS, this requirement is met in relation to the Bedroom Wing which are separated from the rest of the NSAIS by secure doors and are only accessible by the patients and nursing staff i.e. a physical barrier (although there is no reference to physical barriers in VAT Manual VCONST15610).

VCONST15610 Mixed use buildings

126. A distinct part of a building can be used for a RRP, whilst another part of the same building can be used as a hospital or similar institution. Note 10 allows for apportionment between qualifying and non-qualifying areas. Each area must be clearly defined, such as separate connected buildings on the same site or a facility on a different floor. Communal facilities are only used for a RRP if used solely (95% or more) by persons accommodated in qualifying areas.

127. NSAIS can be seen as three distinct zones with common areas: the Accommodation Zone, the Educational Zone and the Clinical Zone.

128. The Respondents accept in VCONST15610 that "a distinct part of a building can be used for a RRP, whilst another part of the same building can be used as a hospital or similar institution" and that is the case here; the emphasis on NSAIS being a "single unit" is inappropriate.

129. The Appellant submits that only the Clinical Zone is used as a hospital; the Educational Zone is used as a school, and the Accommodation Zone is used as residences.

130. Under Note 4 the relevant purpose is "use as..." for a residential purpose. The relevant purpose is not defined by why a person is there or why a building is constructed if it has other uses.

131. The separation of these zones is planned and intended; therefore, the Accommodation Zone/Bedroom Wing should be viewed as a qualifying part of the building under Note 10 because:

a) the patients have their own bedrooms;

b) which they are allowed to personalise;

c) it is their legal residence;

d) it is their legal address;

e) they are treated by local GPs for general medical conditions;

f) they are taught by Local Authority teachers

g) it is intended that it is as similar to a home environment as possible; and

h) they may be resident for several years.

132. The Appellant submits that, based on the above, Note 10 applies and that the Bedroom Wing of NSAIS should be viewed as part-qualifying for zero-rating for a RRP.

133. The Appellant further submits that partial zero-rating could be allowed under Notes 4(a), 4(b), 4(d) or 4(g).

134. The Tribunal requested submissions on the Criminal Procedure (Scotland) Act 1995, S.329 Mental Health (Care and Treatment) (Scotland) Act 2003 and S.108(1) National Health Service (Scotland) Act 1978 relating to hospital directions and the definition of a hospital.

135. The Appellant says that these provisions are not relevant to the meaning of use as a hospital or similar institution under Note 4.

136. The Appellant also notes that S.59A Criminal Procedure (Scotland) Act 1995 (Appendix C) and referred to in S.329 Mental Health (Care and Treatment) (Scotland) Act 2003 in relation to a hospital direction, does not apply to children and therefore cannot apply to the young people in the NSAIS.

137. The Appellant does not challenge these definitions, or rather classifications, but submits that they do not assist with the meaning of use (that is, substantive use) as a hospital or similar institution under Note 4; they are essentially labelling provisions rather than indicative of substantive use.

138. Further, none of the definitions above apply to the Bedroom Wing as the relevant building on a proper construction of Note 10; on that basis it is immaterial that the NSAIS is a hospital, is defined as a hospital or is classified as a hospital because it is not the building in question for the purposes of Item 2(a).

139. There are many hospital buildings, hospital sites or hospital complexes across the UK which are clearly hospitals, given the ordinary meaning of hospital but where partial zero-rating has been allowed by HMRC in relation to a RRP under Note 10.

140. This is reflected in the Commissioners' Guidance VCONST15610 which acknowledges that part of a building can be used for a RRP while another part of the same building can be used as a hospital or similar institution.

141. It follows that if the NSAIS is a hospital, or is labelled as a hospital, or is classified as a hospital, that of itself does not block the zero-rating of part of the NSAIS if that part meets the relevant tests in Note 4 and is not itself used as a hospital or similar institution.

142. The definition of a hospital has been discussed in other cases without any definite conclusion emerging (except that definitions in other statutes did not assist in interpreting the VAT provision): Fenwood (Paras 13-18); Pennine (Paras 59-65) and GHC (Paras 15-28).

143. Of course, the definition of a hospital as such is only a starting point for the interpretation of use as a hospital, and then under Note 10, the application of that interpretation in relation to a specific part of a building which, on the one hand, may be viewed as, or classified as, a hospital as whole, but where the specific part is not used as a hospital or similar institution.

144. In Fenwood) the High Court (Para15) derived no assistance from the various statutory definitions of hospitals to be found in other statutes and rather relied on ordinary dictionary meanings (Para16) concluding that the common element in all these definitions was the provision of medical treatment and care.

145. The Appellant relies on the conclusions of the High Court in Fenwood that the ordinary meaning of a hospital is an institution staffed by doctors and nurses providing medical treatment and care of people who are sick or injured.

146. The Appellant submits that no medical treatment as defined in the 2003 Act will be carried on in the Bedroom Wing, nor is it intended to be; in fact, it is explicitly not intended to be carried on there.

147. Dealing with each of the definitions of 'treatment' in turn:

a) nursing - no active nursing will be provided in the Bedroom Wing - nurses may be on standby, on hand but hands off, but it is part of the design and ethos of the Bedroom Wing that there will be no medical treatment or care in that area;

b) care - no active care will be provided in the Bedroom Wing - staff may be present, and engage in normal human interaction but it is part of the design and ethos of the Bedroom Wing that there will be no medical treatment or care in that area;

c) psychological intervention - therapy and clinical intervention is explicitly not carried on in the Bedroom Wing;

d) habilitation (including education, and training in work, social and independent living skills) - any education or training in work, social and independent living skills would be carried out in the Educational Zone and other areas but explicitly not in the Bedroom Wing; and

e) rehabilitation (read in accordance with paragraph (d) above) - this would be the same as (d) above and explicitly not in the Bedroom Wing.

148. The Bedroom Wing is designed for and intended for residential use and will not be used to provide medical treatment for mental disorder as defined in the 2003 Act; they will not be used as a hospital or similar institution or as hospital accommodation as used in a hospital or similar institution, given the ordinary meaning of hospital, and the design of the bedrooms in the Bedroom Wing does not meet the NHS Scotland air filtration standards for treatment rooms.

149. On that basis the Appellant respectfully requests the Tribunal to allow the Appeal.

HMRC's submissions

150. The issue in the case is quite straightforward: Is NSAIS a hospital, prison or similar institution?

Hospital or similar institution

151. It is accepted that the Building Complex falls within Item 2, as explained by Note 4. The Respondents assert that the Building Complex is a hospital or similar institution; the Appellant disagrees.

152. Admissions to the Building Complex are by virtue of a Court Order.

153. VATCONST15620 states as follows:

"Secure mental health establishments receive people who are detained under the mental health legislation that have been convicted of a criminal offence. Such establishments aren't intended for use as a prison or similar institution and aren't to be so classified. The purpose in detaining the person isn't to punish, but to treat or care for the individual, and is either a hospital or qualifying residential unit."

154. The Respondents accept that the 'prison or similar institution' exception does not apply here, and the only question is whether the facility is a hospital or qualifying residential unit.

155. NSAIS's primary function is to provide medical treatment to the patients to treat their mental condition.

Personal care and Length of stay

156. It is accepted that in order to provide the medical treatment, personal care is given to the residents, but that is not the primary function of the Building Complex.

157. The unit is therefore a "hospital".

158. The Respondents rely on the courts for definitions of what constitutes a hospital, or similar institution, as explained by Fenwood, at [18]:

"In their normal meaning neither hospitals, prisons, hotels nor inns exist for the purpose of providing residential accommodation; nor are they normally occupied as residences by those who are accommodated therein. Thus the exceptions appear to me to be designed to exclude the specified institutions if and in so far as their use might actually come within the principal parts of the definition. Accordingly, it is necessary in each case to contrast the relevant paragraph of Note (4) with the relevant part of the exception.

If, as is accepted in this case, the Dene is "a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of past or present mental disorder", then it can only be excluded if its use is as a hospital or similar institution. The contrast is between a home or institution providing residential accommodation with personal care for those who need it for the prescribed reason and an institution providing medical treatment and associated care, usually on a short-term basis..."

159. As the Appellant's patients are all convicted of violent offences or subject to Court Orders on account of their mental disorders, the nature of the stay could be quite long, (i.e. over 18-months) until a court has confirmed their rehabilitation is complete, or sufficiently complete, for them to be transferred to a regular prison.

160. The maximum theoretical stay for a patient is five years if they were required to attend at 12 and then reach the age of 17. At that point, they are transferred to an adult facility.

161. Short-term it is submitted should not be limited to looking at the average length of stay.

162. Accordingly, 'Short-term basis', in the case of patients detained by way of Court Order, is submitted to mean to the satisfactory completion of that Court Order. There is never a purpose to detain people indefinitely, the goal is to rehabilitate and make them safe for the public or transfer them to an adult facility which has that same goal.

163. It is submitted that 'long-term' indicates a degree of permanence, which is not present in the Appellant's patients. The accommodation is therefore temporary, or short-term.

164. The Appellant focuses on the length of stay aspect and says this is a distinguishing factor from a hospital. However, the Respondents submit that the Appellant has latched on to the length, as opposed to the reason for the stay, which is what Fenwood warns against.

165. Fenwood categorised the stay as 'usually short-term', and therefore did not preclude 'long-term' from falling within a hospital definition, the main difference is the provision of medical treatment and associated care.

166. The length of stay can be indicative of the purpose of the treatment, but the whole condition of the occupant should be considered.

Care home

167. The difference between NSAIS and a care home or hospice, is that there is no expectation for the residents in a care home or hospice to leave once they become residents.

168. The residents of a care home permanently reside there from when they enter, until the end of their life or transfer to a similar facility, which will also care for them until the end of their life because they cannot live outside the facility. They are residents and not patients.

169. Residents of a care home or hospice, which provide both medical and personal care, are permanent residents. The patients of NSAIS are not.

170. Further, when a resident enters a care home, part of the initial triage is about what assistance they require to manage day to day activities - are they immobile, do they have dementia, do they need assistance in washing themselves, what level of assistance or care do they need?

171. It is accepted that a medical review will occur to make sure any existing health conditions are managed (not necessarily treated however), but that is submitted to be, in most cases, a secondary issue, as Fenwood puts it:

"their primary function is to care for the residents and provide a home."

172. That is a completely different triage to NSAIS. The first thing that happens to a new patient of the facility is a medical procedure, attended by a medic and a nurse, where bloods are taken, and a treatment plan is adopted to treat the medical condition which has brought them to the facility.

173. The patient is treated as a patient, not a new resident. They are there because they have a pre-diagnosed mental health condition which makes then a danger to the public.

174. NSAIS does not fall within item 2, because the Building Complex is specifically excluded from having a RRP, by the exception contained within the note 4 definition of RRP.

175. Medical treatment is not an exact science, and serious mental disorders are a lot more difficult to treat than a broken leg. What is important is whether the facility is looking to 'treat' the patient's condition or 'aid' with living (which may involve a medical treatment).

176. Here, despite the lengths of stay being relatively long, that does not change the fundamental purpose of the facility which is to 'treat', and not 'care', which makes sense, as Item 2 requires that the building is used solely for a RRP.

177. It is not solely used to provide residential care, its use is to detain and treat young people, who as a result of their detention require residential care.

178. To fit within Item 2, the patients must attend solely to be housed because they need personal care. That does not correctly describe the patients of NSAIS: they are there because they are court mandated to be there because of illness.

179. Again, unlike a care home whose residents cannot live elsewhere because of physical or deteriorating mental conditions, such as dementia or Alzheimer's; but for the mental conditions which in this case are temporary, or can be managed by medication, these patients could live outside of the institution.

180. The purpose of the 'care' in a care home or hospice is palliative. Although there are medical interventions as well as personal care, the treatment is not, generally, designed to be curative.

181. Here, that is the purpose of the medial care given in the Appellant's facility. The purpose is to treat, cure or stabilise a medical condition, and then release the patient.

182. That is what a hospital does - admit, cure, treat and release.

183. The more recent case of Pennine confirmed that construction of a mental health unit was zero rated and allowed the appeal stating at [68]:

It was clear from the evidence (and there was no real dispute between by the parties) that residents stay on the Unit on average for a period of two years. The residents have usually been diagnosed prior to their residence at the Unit and the Unit does not accommodate those in an acute stage of illness although all residents will suffer from incurable and chronic mental health illnesses. The Unit has the personal aspects of a residence such as individual decoration, catering and laundry facilities. There is also a social aspect to the Unit in that residents go to the theatre, sporting events and the like with staff. In our view these facts applied to the relevant words point away from the Unit being a "hospital or similar institution"; their primary function is to care for the residents and provide a home. However, we did not find these features decisive of the issue; in some circumstances the length of stay may be superficial when viewed against what was actually done during that stay, which is no doubt why the Chancellor in Fenwood couched his judgement in the following terms:

"The contrast is between a home or institution providing residential accommodation with personal care for those who need it for the prescribed reason and an institution providing medical treatment and associated care, usually on a short term basis ... a hospital is a building used for treatment for the cure or amelioration of a medical condition as opposed to personal care; the former is likely to require short term occupation, the latter long-term residence..." (emphasis added)

184. There are defining features which are comparable between Pennine's case and the Appellant's, and those which are not:

Length of stay was two years or more,

No acceptance of persons with acute stages of illness (i.e., no crisis patients taken),

Social aspects to the stay such as residents go to the theatre, sporting events etc,

Primary function is to care for the residents and provide a home,

The length of stay may be superficial in relation to what is actually done.

185. In NSAIS, the only similarity is the length of stay, which, the Respondents argue, is superficial in this case, because what is actually done is primarily to provide "treatment" to the patients, and not "care" for the residents.

186. The patients are certainly not allowed outside the facility to attend theatre events or sporting facilities.

187. The appeal in Pennine was allowed because of paras [70] and [71]:

70. We considered the skills used by those employed at the Unit. The witnesses emphasised the aim of the Unit to take care of the residents and equip them with the skills to manage their illnesses as opposed to medically treating their illnesses....

71. Medical treatment for cure is not relevant in this appeal given the incurable nature of the illnesses of the residents..."

188. And there's the difference. Residents who have an incurable medical condition which will need lifelong assistance with day-to-day care are very different from the Appellant's patients, who have illnesses which ultimately may not be 'cured' as it is very difficult to 'cure' a mental illness, but they can be managed so they can live as an independent member of society outside the facility.

189. Pennine referred to GHC at [22]:

"Taking 'treatment' first, we cannot accept that the provision of some sort of treatment, without more, converts an institution into an institution similar to a hospital. Were it otherwise, any care home that provided any kind of treatment would immediately lose zero-rated status for its buildings. If and when a cure for cancer is discovered, any hospice that started trying to cure some of its inmates instead of merely easing their passing would again lose zero-rated building status. That cannot be right. ...Putting it crudely, the staff are not there to mend the inmates' brains; they are there to re-educate them in how to use them."

190. All care homes provide treatment, but the purpose of care homes is to provide residential care, which may involve the treatment and management of pre-existing conditions.

191. The Building Complex treats conditions; it is, primarily, a treatment centre, not a care facility.

192. At [73] of Pennine:

"In our view the assessments, reviews and therapies undertaken by the staff at the Unit are wholly distinct from diagnosis. Moreover, whilst we accept that residents were treated in that their medication could be altered or changed, we nevertheless found this to be ancillary to the care provided. It is a consequence of the residents' illnesses that they must be treated by medication..."

193. Again, this describes the opposite situation to the Appellant's patients who are treated solely because of a medical condition that has landed them there, with the sole view to treat the condition sufficiently for them to be released.

194. The medical treatment in Pennine was ancillary. It is not ancillary in the Appellant's patients.

Homes

195. The Appellant in its request for a review, suggests that patients can personalise their rooms, so it becomes their 'home' whilst they stay. That, in fact, is part of the treatment to make them feel at ease. As such, it does not, in the Respondents' view, assist the Appellant's case.

196. The Appellant disagrees with the Respondents' view of the personal care provided and points to the updated guidance at VATCONST15610.

197. Although the Respondents agree that a high level of personal care might be provided (however in many cases, not a lot of personal care will be provided) which fits within the guidance, fundamentally, to qualify, that personal care has to be the primary purpose of the facility.

198. That is not the case with the Appellant's patients as they are there to be treated for a medical condition to reduce its level of acuity to a manageable level to enable them to live outside the facility. They are not there permanently because they need day to day personal care.

199. Personal "care" is a necessary requirement, as it is in any hospital where patients are admitted but it is not the primary reason for the stay, which is the "treatment" of a medical condition.

200. The facility is therefore a hospital.

Part-qualifying construction

201. The amended grounds of appeal assert that the concept of part-qualifying construction might be utilised in relation to the Appellant's claim, therefore, the issue is whether the building costs, for the accommodation aspect only, qualify under item 2, whilst accepting that any examination or treatment rooms do not qualify.

202. The Respondents submit, primarily, that to fall within Note 10, there must be a clear and distinct purpose of the part which is being claimed as falling within one of the specified items.

203. As such, the claim is, however, fatally flawed, as the accommodation is part of the facility, because the patients are court mandated to be there. They cannot attend for treatment and go 'home'. They must be secured within the facility as part of the process.

204. There is, therefore, no separation between the Clinical Zone and the Bedroom Wing. It is one facility.

205. The Respondents say that the reason patients are at NSAIS is relevant because they are mandated to be there by a hospital order and if there is no hospital order NSAIS is not eligible to receive the patients.

206. The Appellant refers to VAT Notice 708 and say there is an error in the publication of the notice at 14.6.1. The exemptions appear in the VAT Notice to apply only to part (g) of the notice, as there is a colon after the text of note (g), which is a different layout than in the statute.

207. The statute clearly intends the exceptions to apply to all the categories and not just point (g), there is no colon after the text of point (g), it is a comma, and the exception is back indented to apply to the whole section.

208. That exception, accordingly, applies to each part of the note from (a) to (g) and not just note (g) as it is back indented in the statute.

209. As the whole Building Complex is a hospital or similar institution for its patients, so are its constituent parts that the patients occupy.

210. If the Respondents are wrong, then it is submitted as follows in relation to each item claimed:

Note (4)(a) - Residential accommodation for children

211. It does not matter if the patients are children under (4)(a), because it is hospital accommodation for children.

212. Part of the treatment is the accommodation aspect and the personalisation of their rooms and how they interact with other patients.

213. Mental health is not an illness in which the medical treatment is given at a time and a place, although it is accepted that there are rooms where certain physical examinations and tests take place.

214. Mental health requires a holistic treatment, as explained by the Appellant in its initial emails. The patients are also monitored by nurses on a 24-hour basis. It is clear that the 'treatments' are not limited to organised sessions but are given outside the sessions.

215. The 'admission and first 72 hours document' makes it clear that treatment is provided in the facility and not just in specific rooms.

216. Further, patients cannot enter the Bedroom Wing if they are not being treated. The accommodation is inextricably and inevitably linked to the treatment aspect, that the purposes of residing at the facility must be for the purposes of receiving treatment (drawing on a concept from Vodaphone).

Note (4)(b) - Providing residential accommodation with personal care by reason of a past or present mental disorder.

217. Likewise, for Note 4(b), the Building Complex is a hospital for patients who have a past or present medical disorder - and in this case, it is a "present" medical disorder, because once the disorder is a "past" disorder, the patient would be released - they are there because it is a hospital institution for them and they need to be monitored in case of episodes.

218. The capturing of past or present mental disorder in this section is submitted to be of the debilitating kind such as dementia, or Alzheimer's, as opposed to acute schizophrenia or other more immediate mental illnesses which require a large amount of treatment. The debilitating mental conditions require personal care to assist the resident as the condition gets worse, not medical care to cure or mange it, whereas it is possible to 'treat' the more acute illnesses to a point where no personal care at all is required'.

219. Further, it is also clear that in some cases not much 'personal care' is given in the Bedroom Wing to the Appellant's patients. They have their own laundry and bathing facilities which they use without assistance.

220. Unlike a care home, where the care given will involve assisting a person in washing, cleaning etc, actually none of that is provided to a typical patient unless they are having an episode which may require medical intervention.

Note (4)(d) - residential accommodation for school pupils

221. Note (4)(d) fails for the same reasons as Note (4)(a): the Building Complex provides residential care for students or school pupils, but it does so, as a hospital or similar institution and is therefore exempted.

222. It is accepted that patients study a school curriculum as required for a person of their age, but the accommodation is not provided with an education need in mind, they are not there to learn, they are there to be treated.

223. This note is intended to cover boarding school aspects where children attend a facility for the purposes of education but stay overnight instead of returning to family accommodation.

224. The purpose of being at a school is to learn, therefore the accommodation is for that purpose.

225. Here, the learning is ancillary to their reason for being at the facility. They are there to be treated, but because of their age, they need to be educated.

226. The note, it is submitted, does not apply.

Note (4)(g) - Is the sole or main residence of at least 90 per cent of its residents,

227. It is accepted that the patients live at the premises because they have to but the rule cannot include patient accommodation, because although the patients reside there, they do so because they are forcibly detained there to receive medical treatment, i.e., they are there because the facility is a hospital or similar institution.

228. None of the notes (4)(a) to (g) would permit zero-rating of part of the building because although the facility provides one or most of these aspects, it does so in the course of a holistic treatment of the mental disorder and it would be wrong to separate out the Bedroom Wing and the Clinical Zone.

229. It is a single facility, and the facility is there to provide treatment, i.e., it is a hospital.

230. The Appellant provides medical care to treat mental disorders of children who are required to be at the facility by Court Order namely usually a Compulsion Order or a Restriction Order under the 1995 Act and the 2003 Act.

231. The definition of hospital relevant to these Acts is given at section 108(1) of The National Health Service (Scotland) Act 1978 which states that "hospital" means-

(a) any institution for the reception and treatment of persons suffering from illness,

(b) any maternity home, and

(c) any institution for the reception and treatment of persons during convalescence or persons requiring medical rehabilitation and any institution providing dental treatment contained in connection with a dental school, and includes clinics, dispensaries, and outpatient departments maintained in connection with any such home or institution and "hospital accommodation" shall be construed accordingly."

NSAIS meets the definitions in (a) and (c) and is a facility which provides medical care as its primary purpose.

232. The facility provides immediate medical care on admission for acute illnesses which require immediate assessment and treatment.

233. To be a hospital within Mental Health (Care and Treatment) Scotland Act 2003, a facility must meet

three tests:

1. Any health service hospital as defined by s.108 of the 1978 Act,

2. An independent health care service,

3. Any state hospital.

234. This facility is not an independent health care service or a state hospital, so to be allowed to receive patients under the 2003, it must be considered to be a "hospital" under the 1978 Act.

235. The question then becomes: as it is a "hospital" under the 1978 Act, does this mean it is a "hospital" for the purposes of note 4?

236. "Hospital" under s.108(1) of the 1978 act also has three tests:

a) An institution for the reception and treatment of persons suffering from illness,

b) Any maternity home,

c) An institution for the reception and treatment of persons during convalescence or persons requiring medical rehabilitation...

237. NSAIS meets items a) and c) of the tests.

238. It is accepted, theoretically, that "hospital" under 1978 Act, and "hospital" under VATA 1994 might mean different things, but it is submitted that in practice, only facilities which meet tests a) or c) of the 1978 Act could meet the case law tests for the meaning of "hospital" under VATA.

239. It is accepted that institutions under item b) might not be a hospital under VATA as the definition does not contain the word treatment.

240. As NSAIS is a hospital under items a) or c) of the 1978 tests, meeting either of those tests means that all relevant parts of the institution, and specifically the accommodation area of NSAIS, are a "hospital" under VATA.

241. The case law definitions for VAT require the institution to provide treatment to its occupants, not simply residential care.

242. They are, in the Respondents' submissions, the same test.

243. Facilities that simply provide residential care where treatment is not the principal purpose of the institution would not be considered a hospital under tests a) or c) of the 1978 Act.

244. The Respondents submit that only a "hospital" which meets the test that the "common element in all these definitions is the provision of medical treatment and care" ,as coined by Fenwood and Pennine, could satisfy the requirements to be a "hospital" under tests a) and c) of the 1978 Act, and therefore a "hospital" which meets tests a) and c) is a "hospital" for the purposes of VATA.

245. NSAIS, by virtue of meeting tests a) and c) of the 1978 Act is therefore a "hospital" for the purposes of VATA.

246. A person may, due to their mental disorder, be ordered by the court at sentencing to be detained in hospital to receive medical treatment for their mental disorder in lieu of receiving a prison sentence. Mentally disordered offenders may be diverted into the mental health system from the criminal justice system at various points of the court process. This includes at the pretrial stage, during trial, at the post-conviction but pre-sentence stage, and at the sentencing stage.

247. The Respondents say that the reasons patients are at NSAIS are relevant and they are received there under a Court Order being primarily a Compulsion Order or a Restriction Order or a Hospital Direction or a Transfer for Treatment Direction. The accommodation is necessary to provide the treatment, and it is artificial to claim that the accommodation area is for a RRP.

248. The NSAIS multidisciplinary team although in loco parentis is not in the same position as parents as no member of staff is allowed to take a decision on their own, which must in any case be written down. Any decisions require the consent of the whole MDT. Interventions by the NSAIS team happen all day and there is no difference between those in the treatment areas and those elsewhere. The same processes are followed. FB stated that the Appellant could have constructed a separate accommodation wing, but it was neither feasible nor practical to do so.

249. The fact that there is no CCTV in the residential area does not change its nature and in any event young people are observed in this area every 15 to 20 minutes. There are Kingsway doors and lights to assist with this and so there is no difference between the Bedroom Wing and the other areas as regards observation but just a different way of achieving this. Accommodation is, therefore, an integral part of the hospital with one door being opened from and to the Bedroom Wing once the one behind has been locked in a system of analogues, so the Respondents say there is no difference throughout the facility.

250. Treatment is given not only in the Clinical Zone but throughout the whole facility. This includes the observations made by the NSAIS Team. Treatment also includes the use of medication which takes effect throughout the day wherever the young people are including the Accommodation Zone.

251. It is a hospital because any residential or personal care provided for the patients is ancillary to the medical treatment given. If the medical condition is sufficiently resolved either by way of management with medication or by cure, then the patient is discharged with permission of the court.

252. The facility is a hospital or similar institution and therefore Note 4 does not apply. As Note 4 does not apply, the Building Complex does not fall within Item 2 of being a building designed solely for a relevant residential purpose.

253. It would be highly artificial to split up the Bedroom Wing and Clinical Zones because the accommodation is inevitably and inextricably linked to why the patients are there which is for treatment. This cannot be separated out. As patients are there for treatment, the property is a hospital.

254. If the property can be split, the Respondents say it can only be split into two sections referred to in the Business Case in June 2019, one of which, Education, is not the issue under appeal. The other section which provides the treatment and accommodation, and is the subject of the appeal, does not qualify for zero-rating because it is a hospital.

255. If the Respondents are wrong and only the Bedroom Wing can be considered for zero-rating, then they also say that this forms part of a hospital as treatment happens in this area. All the sections of NSAIS/the Building Complex are inevitably and inextricably linked. It is a single institution, built together and intended to be used together and partial zero-rating is not appropriate in such a facility.

256. The Respondents respectfully invite the Tribunal to dismiss the appeal.

Analysis and Tribunal's Decision

Mental Health legislation

257. Patients are only detained at NSAIS if they are mandated by a court using its powers under the 1995 Act and the 2003 Act. These in turn provide that the patient must receive "medical treatment in accordance with Part 16 of the 2003 Act" which is likely to prevent the patient's mental disorder from worsening or alleviate any of its symptoms or effects. It includes medical treatment, care, nursing, psychological interventions, rehabilitation and help with daily living skills. It is these that make a patient "treatable".

258. As is clear from the Business case and from the Business case 2021, it was to provide this medical treatment for those subject to Court Orders that NSAIS was designed and constructed in Scotland for Scotland to have such an institution, rather than have to send its patients to medium secure facilities for adolescents in England and also to provide better proximity for families of patients.

259. The Appellant says that "under Note 4 the relevant purpose is 'use as...' for a residential purpose and that the relevant purpose is not why a person is there or why a building is constructed if it has other uses".

260. Note 4 instead refers to "intended for use solely for a RRP...". The Concise Oxford Dictionary defines "intended" as, "done on purpose, intentional, designed, meant", and "intend" as, "have as one's purpose or intention".

261. We, accordingly, disagree with the Appellant that the reasons why the patient will be detained at NSAIS are irrelevant as they were the purpose for, and integral to the construction of, NSAIS and drive its intended use. We prefer the Respondents' submissions on this point.

262. NSAIS was entirely tailored so that it could provide the required treatment and security and, furthermore, comply with all the requirements which apply to such a building dealing with patients with mental disorders and taking into account their young ages.

263. The patients cannot leave when they wish because of the Court Orders and the Building Complex, including the Bedroom Wing, is there to provide medical treatment as defined in the 2003 Act.

264. We consider that if this treatment cannot be provided in NSAIS then there is no legal basis under the mental health legislation for the patients to be detained there unless the CO or CORO exempt part of NSAIS but accept, as the Appellant says, that the definition of "hospital" in the National Health Service (Scotland) Act 1978 is in itself not relevant to the VAT treatment of a building.

265. Accordingly, we accept, following the parties' representations that although the mental health legislation refers to such treatment being provided in 'a hospital', as defined in section 329 of the 2003 Act and also following the Chancellor of the High Court in Fenwood at [15], [24] and [25], that no assistance can be derived from this definition in the context of construing VAT legislation.

266. The Appellant's witnesses were emphatic that no treatment was carried out in the Bedroom Wing and say this is unlike a hospital where treatment would normally be carried out in separate rooms or the wards in a hospital.

267. The Business case refers to the 12 bedrooms being "configured in a layout that allows for different ward configurations to assist with fluctuations in admissions" and in the document entitled "a typical day" refers to "ward based activity for those not attending school". This indicates that there has been consideration of the Bedroom Wing as being a ward, similar to a hospital.

268. Whereas the patients have their own bedrooms which they are allowed to personalise, in the same way as the residents of the care home in Pennine, so that it is a similar to a' home environment' as possible, and they may be resident for several years, we do not find that the Bedroom Wing is their legal residence nor their legal address as that is NSAIS; that is to say the Building Complex not part of it.

269. Similarly, the patients are registered with GPs at NSAIS, and not Bedroom Wing which GPs are not allowed access, except in presumably under 'exceptional circumstances', as this is reserved solely for the nursing staff. The education patients may receive from teachers provided by the local authority is generally provided in the Education zone and not the Bedroom Wing and the teachers also have no access to the Bedroom Wing. We consider that these emphasise that NSAIS, the Building Complex, is a single unit.

Medical treatment

270. The Appellant relies on Pennine as authority for the proposition that a 'mental health unit', in this case a care home, was zero rated as it was a home for residents who were detained there under English mental health legislation (albeit in many respects different from the Scottish equivalent).

271. In Pennine, the care home ("the unit") allowed the residents personal aspects such as individual decoration of their rooms, catering and laundry facilities and there was also a social aspect of the unit as the residents could go to the theatre, sporting events and similar activities with staff.

272. The tribunal in Pennine (Judge Jennifer Dean and Mr Julian Stafford) found that the circumstances of the unit pointed away from it being a hospital or similar institution. The tribunal stated that the unit's primary function was to care for residents and provide a home but they did not find those features decisive of the issue and thought in some circumstances the length of the stay may be superficial when viewed against what was actually done during the stay.

273. The tribunal in Pennine referred to the Chancellor in Fenwood in contrasting a home providing residential accommodation with personal care and an institution providing medical treatment and associated care. The Chancellor stated "a hospital is a building used for treatment for the cure or amelioration of a medical condition as opposed to personal care. The former is likely to require short-term occupation, the latter are long term residents".

274. The appeal in Pennine was allowed in part because the aim of the unit was to take care of residents and equip them with skills to manage their illnesses as opposed to medically treating their illnesses, as medical treatment was not relevant given the incurable nature of the illness of the residents.

275. Evidence was given that the work carried out by the medical team at the unit was not typical of a doctor in an acute mental health ward as nothing could be done to prevent the illness of the care home residents getting worse. It was only possible to manage their symptoms. Neither of these circumstances is present at NSAIS. Medical treatment is the primary purpose of the Building Complex.

276. We consider that NSAIS is not a care home and that the facts in Pennine are significantly different. We agree with and adopt the Respondents' submissions in relation to the provision of care and treatment, notably that in a care home residents are likely to have an incurable medical condition which will need lifelong assistance with day-to-day care rather than the Appellant's patients who have an illness which may or may not be cured but can be managed so that they can live as independent members of society outside the facility.

277. Accordingly, a care home like the unit in Pennine is primarily a care facility, where the residents are there permanently because they need day-to-day personal care and where any medical treatment was ancillary, and not a treatment centre which we consider to be a hospital or similar institution.

278. Pennine decided that care homes may provide residential care which may involve the treatment and management of pre-existing conditions, and some form of medical treatment is likely to take place in any care home. The principal purpose of a care home, however, is not medical treatment whereas it is at NSAIS.

279. The Applicant states that no active care will be provided within the Bedroom Wing and that the staff may present and engage in 'normal human interaction'. The staff are trained nursing staff and not security staff. We consider that the requirement for a professional nursing qualification is both relevant and intentional and their interaction and observations form part of the patients' treatment, as defined in the 2003 Act.

280. We do not accept that psychological intervention and therapy ceases at the entrances to the Bedroom Wing. Whereas they may not be explicitly carried on in the Bedroom Wing, in the same way that some treatment would be carried out in a therapy room, FB stated, 'the design of the space focuses upon contemplation and relaxation'. We consider that contemplation and reflection following types of treatment such as CBT forms part of the patients' medical treatment.

281. In addition, it is clear that any medicine or medication given to patients continues wherever the patients are and is not confined to specific areas. The description of "a typical day" says that the Bedroom Wing may be used for the types of activity which comprise the 2003 Act definitions of habilitation and rehabilitation in its definition of 'treatment'.

282. Accordingly, we agree with the Respondents that in the case of NSAIS, the primary purpose is to treat patients so that they can be rehabilitated to a point where they are able to be reintroduced into society. The outcome for some patients may be that they will be cared for until they become adults and at such time they will be reallocated to an adult facility.

283. We find that nursing is part of medical treatment and that medical treatment, as defined in the 2003 Act, is delivered throughout the Building Complex, including the Bedroom Wing.

Length of stay

284. Pennine, as noted, considered the length of stay in the unit in reaching its decision and the Appellant says that this is determinative of why NSAIS or part of NSAIS is not a hospital or similar institution.

285. HMRC's guidance, which is only their interpretation of the legislation, says that the length of stay may help in deciding whether an institution is a care home or hospital. It then states that the length of stay in a home is likely to be longer than the length of the stay in a hospital. In a hospital there will be more emphasis on treating a patient in the shortest time possible whereas in a care home treatment is a much longer process

286. As we, and the Appellant, do not consider that NSAIS is a care home, the issue here is whether NSAIS is a hospital or similar institution.

287. The Appellant referred to the average stay in hospital and said, in its ordinary meaning, this is six days. We asked for further explanation of the how the average was calculated taking into account that visits to an accident and emergency unit and many other admissions to hospitals are often only day cases.

288. A more accurate comparison might be made with the average stay in, what the Chancellor in Fenwood referred to as, a mental home or a mental hospital but this information was not provided. It is within judicial knowledge that a stay in a Psychiatric Intensive Care Unit (PICU) of a mental hospital is usually well in excess of six days and the appeal procedure for Compulsion Orders and Compulsory Treatment orders is usually in successive periods of six months.

289. On 11 February 2020, the Appellant's agents stated that "the business case does not have fully comparable like for like average patient stay data to forecast likely average stay. Similar facilities in England have average stays of between 9-18 months, however, the expectation for the NSAIS facility is that this is more likely to be between 18 months to 5 years based on the anticipated needs of the patients."

290. We do not accept that even if the average stay in a mental hospital is much longer than six days this means that a mental hospital is not a hospital or similar institution nor used as such.

291. Treating mental disorders is a complex process and treatments such as CBT and the titration of medication/medicines for mental disorders is unlikely to be administered to a degree acceptable to a Responsible Medical Officer within a short stay of even an average of six days.

292. As the decision in Pennine was not in relation to a unit that offered treatment that facilitated recovery or rehabilitation, as in that institution there was no purpose or ability to do that, we distinguish the facts and circumstances in Pennine but consider its conclusion, that the length of stay may in some circumstances be superficial compared with what is actually done, as persuasive.

293. We find that the length of stay in a hospital is commensurate with the treatment that the patient requires to fulfil the principal aim of a hospital which is for the cure or amelioration of an illness and is not of itself determinative of whether a building is or is not a hospital or similar institution.

294. We also consider it unrealistic to compare the average stay in hospital for treatment of a broken arm, for example, with the average stay in a hospital to treat acute schizophrenia where treatment is likely to take longer.

295. Accordingly, we consider that the length of a patient's stay in NSAIS does not indicate that the Building Complex or part of it is not used as a hospital or similar institution.

Relevant Residential Purpose

296. The Appellant says that NSAIS is the patients' home as it is where they live and emphasise the positive aspects from both care and treatment perspectives of the design of the bedrooms being the personal spaces of the patients. This includes a limited ability to lock their rooms, to decorate them and carry out certain activities there.

297. The examples of the daily activities in the "a typical day" document, albeit for staff and carers, indicate that access to the Bedroom Wing is limited throughout a 24-hour period and throws doubts on whether the Bedroom Wing is solely intended as a home or "residential accommodation", as opposed to the places where the patients sleep, use the ensuite bathroom facilities and can carry out a number of activities particularly if they are not required to attend schooling, and presumably during school holidays.

298. The Concise Oxford Dictionary defines "residential" as "suitable for or occupied by private houses" or "used as a residence" and defines "residence" as "the place where a person resides; an abode". It defines "accommodation" as a room for receiving people, especially a place to live or lodgings.

299. Although we consider that the Bedroom Wing is a hospital or similar institution, when considering the activities of daily living, which include dressing, toileting, washing, mobility, transferring and eating, as a useful measure by which to ascertain whether a building is accommodation or a home or a residence, there is one major activity of daily living that cannot be carried out in the Bedroom Wing and that is eating. This is caried out in the dining area or dining court.

300. Similarly, there are two lounges in the Bedroom Wing where the patients can "socialise" but given the precautions that have to be taken regarding which patients can enter and meet in the courtyard, onto which the Bedroom Wing faces, at any one time so as to avoid any potential conflicts or difficulties between different patients, this must also apply to the occupancy of the lounge areas.

301. When the patients meet their families this can only take place in areas that specifically does not include the Bedroom Wing.

302. These restrictions are such that the Bedroom Wing does not provide the normal attributes of residential accommodation or a home or a residence as they do not provide the occupants with the necessary facilities to live a domestic life independently.

303. The Bedroom Wing is where the patients sleep and can use the bathroom facilities, in many respects similar to a hotel or similar establishment.

304. Accordingly, we do not consider that the Bedroom Wing is used solely for a RRP as it is only a place for sleeping, bathing, toileting and some work or leisure activities and where access to them is restricted at times of the day.

Hospital or similar institution and whether use is similar to a hospital.

305. We have considered the relevance of length of stay in deciding whether a building is a hospital or similar institution.

306. The Bedroom Wing is inextricably and inevitably linked to the treatment which is provided for the patients who are detained at NSAIS, which is why the Building Complex was constructed and which is a hospital or similar institution.

307. As stated in Fenwood at [18]:

"in their normal meaning neither hospitals prisons, hotels nor inns exist for the purpose of providing residential accommodation; nor are they normally occupied as residences by those who are accommodated therein. The Chancellor went on to say "thus the exceptions (in Notes 4 a to g) appear to me to be designed to exclude the specific institutions if and in so far as their use might actually come within the principal parts of the definition. Accordingly, it is necessary in each case to contrast the relevant paragraph of note (4) with the relevant part of the exception.

He continued "the contrast is between a home or institution providing residential accommodation with personal care for those who need it for the prescribed reason and an institution providing medical treatment and associated care, usually on a short-term basis.

308. As all the patients are convicted of violent offences, the nature of their stay could be quite long until a court has confirmed that rehabilitation is complete, or sufficiently complete, or for them to be transferred to a regular prison. In addition, a patient can only be detained at NSAIS until they are 18 years old. The theoretical maximum stay for patients is likely to be five to six years, if they were first required to attend at 12 years old, after which, if still detained, they are transferred to an adult facility.

309. As stated in GHC "all hospices have certain points in common with hospitals; all care homes resemble both hospitals and hotels to a certain extent; residential accommodation for school pupils may not be as similar to prisons as it used to be, but the two are still not entirely dissimilar."

310. Pennine stated that superficial similarities are not enough to bring the exception into play and care must be taken not to construe the provision so as to render the exceptions in the note ineffective.

311. Nevertheless, we prefer the Respondent's submissions on the inapplicability of notes (4) (a), (b), (d) and (g) because the conditions to which they refer are not met. Fundamentally we do not believe the Bedroom Wing is intended for use solely for a RRP, because we consider that it is artificial to consider that the Bedroom Wing is not part of the Building Complex which we consider in its entirety is a hospital or similar institution. Consequently Note 4 and Note 10 do not apply.

312. Pennine considered the "badges" approach adopted by the tribunal in GHC in attempting to define 'hospital or similar institution'. In that case the tribunal "did not follow the badges approach [at 61] as if it provided an exhaustive list of relevant criteria but there were a number of factors, none of which may be conclusive and all of which may carry varying degrees of weight which are relevant to and assist us in reaching our decision" and said "The relevant words must be construed in the appropriate context by application to the facts".

313. The tribunal in Pennine also considered the use of professional skills in the course of the duties of the staff at the unit but did not find that it automatically followed that the use of such skills tipped the balance from personal care to medical treatment.

314. In NSAIS, we consider that the medical treatment is not ancillary to the care and the evidence is that the nursing staff, who are professionally trained to deal with patients with mental disorders, will carry out inspections or observations of patients every 15 to 20 minutes whilst they are in the Bedroom Wing.

315. We consider that these observations are part of the treatment carried out by professionally skilled nursing staff, the only ones who have access to the Bedroom Wing who work under strict protocols given the vulnerable status of the patients.

316. The observations provide for the noting down of any matters which directly would result in the MDT reconsidering whether there should be any changes to a patient's Care Plan, which is an integral part of the treatment patients receive under Part 16 of the 2003 Act. The treatment and care plans are interlinked and form part of the aim of rehabilitating the patients, and changes to the plans are not restricted to observations in the Bedroom Wing.

317. We do not accept that the treatment in the form of CBT and similar therapies and medication stops at the entrances to the Bedroom Wing, let alone at the doors to the individual bedrooms. We consider that these forms of treatment must be seen in the context of the need and requirement for such consistent observations particularly as there is CCTV in the Bedroom Wing, just not in the bedrooms.

318. The patients are compulsorily detained at NSAIS under a Court Order for treatment and in order to receive the treatment and meet the conditions of the Court Order they are required to live in the Building Complex. The Bedroom Wing is where they sleep and use the bathrooms and have some time to themselves.

319. The whole Building Complex is secure with an 'airlock' system of open and closed doors and the aim as stated in the Business case is to be able to lock down the Bedroom Wing/accommodation zone "out of hours". There is in addition a high security perimeter fence around the Building Complex where necessary to provide further security.

320. We do not consider the fact that there is no CCTV in the bedrooms emphatically changes the nature of the Bedroom Wing compared to other areas which the patients use including the clinical or blue zone, which also contains where the patients are, substantially, fed.

321. The patients are observed every 15 to 20 minutes, there are Kingsway doors which the nursing staff can access and who can open the locks to the doors to the bedrooms and use lights to observe the patients when the rooms are dark. The patients can only enter the Bedroom Wing once they have been through an airlock system of doors with the door behind being closed before the next door is open. These are not the usual attributes of a building intended for use solely for a RRP.

322. We find that it is artificial to claim that the Bedroom Wing is intended for use solely for a RRP. It is an integral and inextricable part of the Building Complex whose intended use is a hospital or similar institution primarily to deliver medical treatment to patients under Part 16 of the 2003 Act and protect the staff and public whilst doing so. Accommodation and education are ancillary activities which are necessary only to deliver the medical treatment and security required in view of the practicalities of delivering that medical treatment and taking account of the legal entitlements of the patients given their ages.

323. Accordingly, for the reasons stated we do not accept that there is no treatment in the Bedroom Wing and taking into account all the evidence and factors and giving each appropriate weight, we find that the accommodation zone/Bedroom Wing is a hospital or similar institution and used as such as part of the Building Complex as a whole.

Partial zero-rating

324. The Appellant, correctly, states that the legislation at Note 10 provides that where part of the building that is constructed or designed as a dwelling or number of dwellings or is intended for use solely for a RRP, and part of it is not, then zero rating can apply.

325. This does not mean that it must apply but that it can apply where part of the building is constructed or designed or intended for use as a RRP.

326. The Appellant says that partial zero-rating is granted by HMRC at 'hospitals' but provided no examples.

327. For the reasons stated we do not find that the Building Complex or any part of it was solely intended for use as a RRP. The Bedroom Wing is an integral and inextricable part of the NSAIS Building Complex, which is a hospital or similar institution and used as such, which in turn, denies the applicability of Note 4. We find that no part of the Building Complex was intended for use solely for a RRP and so the comparison in Note 10 does not exist.

328. For the reasons stated, the appeal is dismissed.

Right to apply for permission to appeal

329. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.

WILLIAM RUTHVEN GEMMELL WS

TRIBUNAL JUDGE

Release date: 01^st MAY 2025

First-tier Tribunal (Tax)