VAT – Zero-rating Group 6 Schedule 8 – Works to buildings no longer linked but single listing – not garage or separate dwelling – Zielinski Baker applied - No zero‑rating

LONDON TRIBUNAL CENTRE						   

MR EDDIE KING	Appellant

- and -

HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

		Tribunal:	Adrian Shipwright (Chairman)
				Sheila Wong Chong FRICS

Sitting in public in London on 22 June 2005

Miss K Blackwell, VAT Consultant, for the Appellant

Mr Kieran Beale, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION
Introduction
1.	This appeal concerns the correct VAT treatment of the supply of certain building works (the “Works”) by Hapsco Limited (“Hapsco”) to the Appellant.
2.	The appeal is against a decision of HM Revenue and Customs (“HMRC”) dated 24 June 2004.  This upheld a decision dated 10 March 2004 given to Hapsco that the supply of the Works in question attracted VAT at the standard rate and did not fulfil the conditions for zero-rating.
3.	The Works broadly consist of two elements.  These are:
(1)	work carried out to the Barn; and
(2)	work relating to a terrace and driveway.
The Issue
4.	The issue in this appeal is whether the Works fulfil the conditions for zero-rating.  This raises two matters in particular:
(1)	Whether the Barn was part of the dwelling that was listed, but a separate building for VAT purposes, or was to be treated as a separate building capable of attracting zero-rating as a separate dwelling in respect of the work done to it (“the Barn Issue”);
(2)	Whether the works to the terrace and driveway were approved alterations to the fabric of the listed building (“the Other Works Issue”).
The Legislation
5.	The relevant legislation is found in the Value Added Tax Act 1994 (“VATA”).  The general rule is that supplies of goods and services in the UK attract VAT at the standard rate unless the supply falls within an exemption or a provision allowing VAT to be charged at a nil rate, ie zero-rating in UK law (exemption with recovery in European law terms).
6.	Group 6 Schedule 8 VATA provides for zero-rating in respect of certain approved alterations.  It reads (so far as is relevant):
Group 6 - Protected buildings 

Item No 
1
The first grant by a person substantially reconstructing a protected building, of a major interest in, or in any part of, the building or its site.

2
The supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect, surveyor or any person acting as consultant or in a supervisory capacity. 

3
The supply of building materials to a person to whom the supplier is supplying services within item 2 of this Group which include the incorporation of the materials into the building (or its site) in question. 

NOTES 

(1) “Protected building” means a building which is designed to remain as or become a dwelling or number of dwellings (as defined in Note (2) below) or is intended for use solely for a relevant residential purpose or a relevant charitable purpose after the reconstruction or alteration and which, in either case, is:

(a)	a listed building, within the meaning of: 
(i)	the Planning (Listed Buildings and Conservation Areas) Act 1990; or
(ii)	the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997; or
(iii)	the Planning (Northern Ireland) Order 1991; or
(b)	a scheduled monument, within the meaning of:
(i)	the Ancient Monuments and Archaeological Areas Act 1979; or 
(ii)	the Historic Monuments and Archaeological Objects (Northern Ireland) Order 1995.
(2) A building is designed to remain as or become a dwelling or number of dwellings where in relation to each dwelling the following conditions are satisfied: 
(a)	the dwelling consists of self-contained living accommodation;
(b)	there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
(c)	the separate use, or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision,
and includes a garage (occupied together with a dwelling) either constructed at the same time as the building or where the building has been substantially reconstructed at the same time as that reconstruction. 

(3) Notes (1), (4), (6), (12) to (14) and (22) to (24) of Group 5 apply in relation to this Group as they apply in relation to that Group but subject to any appropriate modifications. 

 (6) “Approved alteration” means: 

(a)	in the case of a protected building which is an ecclesiastical building to which section 60 of the Planning (Listed Buildings and Conservation Areas) Act 1990 applies, any works of alteration; and ;
(b)	in the case of a protected building which is a scheduled monument within the meaning of the Historic Monuments Act (Northern Ireland) 1971 and in respect of which a protection order, within the meaning of that Act, is in force, works of alteration for which consent has been given under section 10 of that Act; and
(c)	in any other case, works of alteration which may not, or but for the existence of a Crown interest or Duchy interest could not, be carried out unless authorised under, or under any provision of -

(i)	Part I of the Planning (Listed Buildings and Conservation Areas) Act 1990,
(ii)	Part I of the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997,
(iii)	Part V of the Planning (Northern Ireland) Order 1991, 
(iv)	Part I of the Ancient Monuments and Archaeological Areas Act 1979,

and for which, except in the case of a Crown interest or Duchy interest, consent has been obtained under any provision of that Part,

but does not include any works of repair or maintenance, or any incidental alteration to the fabric of a building which results from the carrying out of repairs, or maintenance work.

(7) For the purposes of paragraph (a) of Note (6), a building used or available for use by a minister of religion wholly or mainly as a residence from which to perform the duties of his office shall be treated as not being an ecclesiastical building.
 
(8) For the purposes of paragraph (c) of Note (6) “Crown interest” and “Duchy interest” have the same meaning as in section 50 of the Ancient Monuments and Archaeological Areas Act 1979.
 
(9) Where a service is supplied in part in relation to an approved alteration of a building, and in part for other purposes, an apportionment may be made to determine the extent to which the supply is to be treated as falling within item 2.
 
(10) For the purposes of item 2 the construction of a building separate from, but in the curtilage of, a protected building does not constitute an alteration of the protected building.
 
(11) Item 2 does not include the supply of services described in paragraph 1(1) or 5(4) of Schedule 4.”
Cases
7.	Copies of the following cases were provided to the Tribunal:
Stichting Uitvoering Financiele Acties v Staatssecretaris van Financien [1991] 2 CMLR 429, ECJ
Institute of the Motor Industry v Commisioners of Customs and Excise [1998] STC 1219, ECJ
Commissioners of Customs and Excise v Viva Gas Appliances [1983] 1 WLR 1445, HL
Uratemp Ventures Ltd v Collins [2001] UKHL 43, [2002] 1 AC 301,HL
Commissioners of Customs and Excise v Zielinski Baker & Partners Limited [2004] UKHL 7, [2004] 1 WLR 707, HL
Commisioners of Customs and Excise v Moorish [1998] STC 954, Moses J
Revenue and Customs Commissioners v Tinsley (Decision of Laddie J dated 10 June 2005, not yet reported)
AC Tinsley [LON/00/494] (decision no 17517, dated 17 October 2001, Ms Powell, Chairman)
Logmoor Ltd v Commissioners of Customs and Excise [MAN/95/2750y, Mr MS Johnson, Chairman, Case 14733]
Amicus Group Ltd v Commissioners of Customs and Excise VAT Tribunal, 9 July 2002, Dr Avery-Jones, Chairman]
Lord and Lady Watson of Richmond v Commissioners of Customs and Excise (VAT Decision No 18903, Edward Sadler, Chairman, dated 7 January 2005).  
Documents
8.	No agreed bundle of documents was produced.  Each party produced its own bundle of documents.  No objection was taken to the admission of any of these documents which included some photographs and plans of the property in question.
Evidence
9.	Oral evidence was given by Mr Edward Alec King, the Appellant and by Mr Richard Thompson Riley, HMRC Senior Assurance Officer at Lockton House, Cambridge.  No witness statements were produced.  However, a draft statement for Mr Riley was produced which the parties agreed should stand as evidence in chief.
Findings of Fact
10.	From the documents and the evidence, we make the following findings of fact.
(1)	The Property in question is a charming house standing in its own grounds in Cambridgeshire called ‘Rhee House’.  It has been sympathetically restored.
(2)	Rhee House was built in the 1840’s, (seemingly 1849) as a vicarage.
(3)	It was sold out of church control seemingly in the 1970’s.
(4)	On the site at present are a number of buildings, namely the original vicarage building (“the House”), a garage and a building referred to during the hearing and in this Decision as ‘The Barn’.
(5)	Rhee House is a Grade II listed building.  It was listed in late 1984 under section 54 of the Town and Country Planning Act 1971.
(6)	The Appellant (and his wife) bought the House in about 2001 from the Doctors Barnes.
(7)	The Doctors Barnes had applied for planning permission to use the Barn as a separate dwelling in 1981.  This was granted for five years subject to conditions.  The permission has been renewed every five years since.  The current permission expires in 2006 and so was in force throughout the period in question having been granted in March 2001.
(8)	When the Appellant and his wife acquired the property, the House and the Barn were linked by other buildings which provided internal access from the house to the barn and vice versa.  The linking buildings consisted of a conservatory and a single storey building, these have been demolished.  
(9)	The Barn was not part of the original design and building of the House.  It was built in about 1972.  It was a new construction not replacing anything that had stood there before.  It, at one time, contained a swimming pool.
(10)	The conservatory was built seemingly in the 1980’s.  It was not a particularly sympathetic construction.
(11)	The conservatory was demolished before 1 January 2003.
(12)	Listed building consent was applied for permission for various works by Dow Jones (“the Architects”) on 18 October 2002.
(13)	Listed building consent was granted on 6 January 2003.  The consent authorised:
“Restoration – Internal and External Alterations including re-siting and replacement of two staircases, enlargement of hearth in kitchen and provision of extension of the larder, laundry, boiler room and store.  Enlargement of master bedroom and adjacent dressing room and changes to provide three guest rooms and bathrooms.  Additional windows and rooflight, removal of conservatory, sauna and stores.  Alterations and conversion of swimming pool to studio with workshop, kitchen and shower room with stairs to first floor platform lit by eight rooflights and clad with black weatherboarding.  Cladding of brick garage with weatherboarding.  Erection of railings.  Walls and construction of steps.
At 67 Church Street, Harston
(For Mr and Mrs E King).”
(14)	The Consent was subject to a number of conditions.  These included Condition 9 which reads:
“Before work begins, samples of the materials proposed for the hard surfaced areas within the site, including roads, paths, drives and car parking areas, shall be submitted to the local planning authority for prior, written approval.  (Reason - to protect the setting of the listed building.)”
(15)	The Architects carried out a great deal of research as to what the House in its setting would have looked like in the 19th century.  This informed the Appellant what was done to the property by way of ‘restoration’.
(16)	The original terrace to the House was removed and the levels adjusted so that water would flow away from the House, rather than towards it.
(17)	The terrace was laid with Yorkstone paviours.  It abuts but is not joined to, or keyed into the House.  There is a small gap for drainage between the house and the terrace.
(18)	The driveway was replaced but is not keyed into or joined to the House.  It merely abuts it.
(19)	Mr King said when the Works were carried out it was not his  purpose to use it as a separate dwelling or building from the House, but to have it as part of the facilities for the house.
(20)	Although the buildings may be linked by a pergola, there is no internal access between the House and the Barn. 
11.	We find specifically that:
(1)	the terrace abuts but is not joined to or keyed into the House.  There is a small gap between the House and the terrace for drainage purposes.  It is part of the setting of the House but not part of the House;
(2)	the work concerning the terrace did not form part of the Works authorised by the Listed Building Consent.  Condition 9 was not part of the Consent but a matter precedent to but separate from the Consent and its Permission;
(3)	the work concerning the terrace was not an alteration of part of the fabric of the House, the listed building, nor was it an approved alteration.
(4)	the driveway is part of the setting of the House but is not part of the fabric of the House;
(5)	the driveway abuts the House but is not joined and not keyed into the House ;
(6)	the work concerning the driveway did not form part of the Works authorised by the Listed Building Consent.  Condition 9 was not part of the Consent but a matter precedent to but separate from the Consent and its Permission;
(7)	the work concerning the driveway was not an alteration of part of the fabric of the House, the listed building, nor was it an approved alteration.
The Appellant’s Submissions
12.	Miss Blackwell for the Appellant submitted that the Appellant was entitled to zero-rating as what was involved fell within Group 6 of Schedule 8 VATA as approved works for the restoration of a listed building.
13.	She argued in particular that:
(1)	At the commencement of the Works, the buildings were linked.  Accordingly the Works done to the Barn were works done to the whole building, all of which was listed.
(2)	Consequently, the building to be considered was the whole of the group of buildings within the complex which was what was listed.
(3)	The Barn was an integral part of a single domestic dwelling and was used as such.  Accordingly, the requirements of both Notes (1) and (2) to Group 6 were fulfilled.
(4)	The Appellant’s intention in carrying out the Works was to retain the whole of the original building as a single dwelling, to be used as such by his family, whilst restoring the building as far as possible to its original state.
(5)	Although there was no internal access between the House and the Barn they have remained linked by a pergola and the terrace.  The removal of the internal access does not change how the Appellant used the occupation, or how the occupier views his residence.
(6)	The Lord and Lady Watson of Richmond Case was not applicable here.  In that case, the work was carried out to a utility room which at the commencement of work was a separate building from the main house.  The present case can be distinguished factually as at the start of the Works there was a single building.
(7)	Further, there is still planning permission to convert the Barn into a separate dwelling.  Accordingly, the Barn could have been used as a separate dwelling.
(8)	The House of Lords decision in Zielinski Baker & Partners Limited is distinguishable on the facts.  In that case, the outbuilding in question was not linked to the main house on commencement of the works whereas here it was.
(9)	Essentially it is the complete single domestic dwelling which was being altered which was a dwelling prior to the commencement of the Works and remained a single domestic dwelling on completion of the Works.
(10)	Further, the Barn could be used as a separate dwelling and so fulfilled the conditions for zero-rating on that basis.
(11)	As the terrace and driveway works were the subject of listed building consent, they too are alterations which attract zero-rating.
(12)	This is shown by the specific mention of the construction of steps leading from the terrace to the lawn in the listed building consent and the planning application states that hard landscaping will be needed.  Condition 9 shows this to be the case for the driveway.
(13)	Further, the case of Logmoor Limited is distinguishable factually.  The terrace at the house is a sizeable construction which is joined to the House.  It was needed in order to accommodate the new drainage system incorporated into the House and to assist in the flow of water away from the walls of the House.
(14)	Both the Works to the Barn and to the terrace and the driveway must be accorded zero-rating as they fulfil the conditions in the Group.
Submissions by HMRC
14.	Mr Beale, on behalf of HMRC, in essence submitted that on the basis of Zielinski, the Barn was a separate building which was not entitled to zero-rating and as the terrace and driveway abutted but were not joined to the House they could not constitute an alteration to the fabric of the House, such that the conditions for zero‑rating were not fulfilled.
15.	It is clear here that single building was not designed to remain and did not remain as a dwelling after the Works.  The building works in issue lead to the formation of two separate buildings which are distinct from one another.
16.	Zielinski establishes that a single dwelling for these purposes cannot consist of two or more buildings except in relation to a detached garage, even if they are classified as a single listed building.
17.	Accordingly, the only way that the Barn could attract zero-rating would be if it was designed to become and became a dwelling on completion of the Works.  This would require a positive answer to the question, whether the Works are intended to convert the Barn into self-contained living accommodation.
18.	This was not the case as:
(1)	Mr King himself said in his evidence that it was not the intention of what was done.
(2)	The correspondence stated that the Barn was to remain part of the residential accommodation used in conjunction with the main house.
(3)	Linkage by means of a pergola and a terrace was not sufficient to make the Barn part of the House for these purposes.  There was no internal access.
(4)	The proposal from the Architects said that the proposed use for the Barn was as a painting studio and a small workshop with ancillary facilities.  The intention was for the outbuildings to create two buildings that were similar in appearance and looked like a group of agricultural outbuildings adjacent to the main house.
19.	The argument that the Barn was intended to become a separate dwelling after the alteration works is therefore unsustainable.
20.	The argument that the entire building constituted a single dwelling both before and after the works cannot stand in the light of the of the House of Lords decision in Zielinski.
21.	  The works to the terrace and driveway were not alterations to the fabric of the House as they are not linked or keyed into the house, but merely abut.  This was confirmed in evidence by Mr King.
22.	  The conclusions of the High Court in A.C. Tinsley are binding.
23.	  Further alternatively, these works did not receive listing building consent and so do not constitute “Approved Alterations”.  This is because they are not listed in what permission was given for and reference is only made to them in the conditions which are not part of the permission.
24.	  Accordingly, neither the works to the Barn nor to the terrace and driveway fulfil the conditions for obtaining zero-rating.
Discussion
Introduction
25.	For the reasons we give below we consider that none of the Works attracts zero-rating.  Accordingly, they are properly standard rated.
The Barn Issue
26.	We find (and have found) that:
(1)	The Barn was not connected to the House at the time of the commencement of the Works, nor at the completion.
(2)	Even if the House and the Barn were connected by the pergola and the terrace, there was no internal access between them.
(3)	The Barn is not to be regarded as a detached garage.  There was a separate garage.
(4)	The Barn was not designed to be a separated dwelling after the Works.  It was for use as part of the facilities of the House as Mr King said in evidence.  The existence of the planning permission did not affect this.  It might have allowed a different use but such use was not contemplated, brought to fruition on the basis of design.
(5)	The Barn was a physically separate building from the House not designed or intended for use as a separate dwelling.
27.	Despite Miss Blackwell’s valiant attempts to persuade us otherwise there is no relevant factual distinction between this case and the Lord and Lady Watson of Richmond case, nor between this case and the Zielinski Baker case.
28.	We consider that, as Mr Beale submitted, the only way that the Barn could attract zero-rating would be if it was designed to become and became a dwelling on completion of the Works.  This would require a positive answer to the question, whether the Works are intended to convert the Barn into self-contained living accommodation. 
29.	Accordingly, the Barn could only qualify for zero-rating if it was:
(1)	designed for use as a separate dwelling; or
(2)	a detached garage. 
We have found as a matter of fact neither of these things is the case.
30.	It follows that the Works to the Barn do not attract zero-rating and are thus properly standard rated.
The Other Works Issue
31.	We find (and have already found):
(1)	the terrace abuts but is not joined to or keyed into the House.  There is a small gap between the House and the terrace for drainage purposes.  It is part of the setting of the House but not part of the House;
(2)	the work concerning the terrace did not form part of the Works authorised by the Listed Building Consent.  Condition 9 was not part of the Consent but a matter precedent to but separate from the Consent and its Permission;
(3)	the work concerning the terrace was not an alteration of part of the fabric of the House, the listed building, nor was it an approved alteration.
32.	We find (and have found):
(1)	the driveway is part of the setting of the House but is not part of the fabric of the House;
(2)	the driveway abuts the House but is not joined and not keyed into the House;
(3)	the work concerning the driveway did not form part of the Works authorised by the Listed Building Consent.  Condition 9 was not part of the Consent but a matter precedent to but separate from the Consent and its Permission;
(4)	the work concerning the terrace was not an alteration of part of the fabric of the House, the listed building, nor was it an approved alteration.
33.	Despite Miss Blackwell’s valiant efforts to persuade us otherwise, we find that, as a matter of fact, the Works to the terrace and driveway do not fulfil the conditions for zero-rating.  It follows that the Works to the terrace and the driveway do not attract zero-rating and are properly standard rated.
Conclusion
34.	Whist we are sympathetic to the Appellant and the way that he has carried out the restoration we have to apply the law as it is.  For the reasons set out above we find that the works to the Barn should be standard rated and not zero-rated, and the works to the driveway and terrace should be standard rated and not zero-rated.  This is because the Barn is a separate building, not intended for use as a separate dwelling and because the terrace and driveway do not form part of the fabric of the House.  The appeal is accordingly dismissed.  

ADRIAN SHIPWRIGHT

CHAIRMAN
RELEASE DATE: 8 August 2005

LON/2004/1086