20597

ZERO-RATING – installation of lift in care home by building external structure joined to the building on one side to house it – whether architect’s services included in “services necessarily performed in the installation of a lift” in item 17 of Group 12 of Schedule 8 to the VAT Act 1994 – yes – appeal allowed

LONDON TRIBUNAL CENTRE

	FRIENDS OF THE ELDERLY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					SHEILA WONG CHONG FRICS
					LYNNETH M SALISBURY

Sitting in public in London on 25 February 2008

Phillipa Whipple, counsel, instructed by Chantery Vellacott DFK, for the Appellant

Christiaan Zwart, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	Friends of the Elderly appeals against a decision in a letter of 14 April 2006 from the Respondents (“Customs”) that architect’s services relating to the installation of a new lift in a care home do not qualify for zero-rating.  The Appellant was represented by Miss Philippa Whipple and the Customs by Mr Christiaan Zwart.
2.	The issue in this appeal is whether architects’ fees relating to the installation of a lift in a care home qualifies for zero-rating under item 17 of Group 12 of Schedule 8 to the VAT Act 1994:
“17.  The supply to a charity providing a permanent or temporary residence or day-centre for handicapped persons of services necessarily performed in the installation of a lift for the purpose of facilitating the movement of handicapped persons between floors within that building.
18.  The supply of goods in connection with a supply described in item…17”
3.	We had a bundle of documents and heard evidence from Mr Peter Cottrell, Director of Property of the Appellant.  We find the following facts:
(1)	The Appellant is a charity that provides a permanent residence for older people with some nursing and dementia provision in eight locations (and also manages another seven homes).  
(2)	The appeal concerns two homes, Davenham, a residential home, and Perrins House, a residential and nursing home, both in the same grounds in Malvern, Worcestershire.  The evidence concentrated on the former but the circumstances of both are similar.
(3)	The average age of residents is increasing and has needed changes in how care homes operate.  Residents tend to be less mobile and more likely to suffer from dementia.  Many qualify as handicapped persons.  The lift in Davenham could accommodate a wheelchair but not a helper as well.  It did not serve the mezzanine floor and it could not accommodate the drug trolley.  It was decided to replace it for the purpose of facilitating the movement of handicapped persons between floors within that building.  A project viability report was prepared with the assistance of architects comparing the following options, which sets out the main comments about each of them:
(a)	Do nothing; fails to address the need.
(b)	Enlargement of the existing lift shaft; would require considerable structural alterations that would be lengthy, costly and extremely disruptive to residents.
(c)	Install a new lift in the ground floor pantry light well; does not address need any better than the existing lift but eliminates the single point of failure.
(d)	As (c) but with a platform lift between the first and mezzanine floor; concerns about staffing requirements for double handling of platform lifts which require the user to keep the button pressed during lift movements and is unsuitable for frail residents and those suffering from dementia. 
(e)	New lift as in (c) plus an additional lift from the kitchen light well which would serve the mezzanine floor; concerns about building work in the courtyard and loss of light in the kitchen area.
(f)	As (c) plus additional lift as in (e) but on an external elevation; impacts on circulation between kitchen and dining room.
(g)	As (f) but relocated to avoid external drainage; avoids a concentration of below-ground drainage and external pipework; the preferred option.
(4)	Options (e), (f) and (g) were rated equally against ten factors, such as cost, minimising inconvenience, disruption etc, with (g) being preferred.  It involved constructing a building to house the lift on three sides, the fourth side being the existing outside wall of the building with its roof joining on to the building’s roof.  
(5)	The Appellant issued an invitation to tender for architectural design, project management and planning supervisor services, as a result of which they appointed the architects who had assisted with the viability report.  The architects prepared a feasibility report including drawings for four options.  Option 4 was chosen by the Appellant’s trustees and management. The architects did the design work, supervised the building and installation work liaising with the Appellant and were responsible for informing the Appellant of the possibility of the estimated cost being exceeded.  They could engage a quantity surveyor (but this was not necessary) and a structural engineer (which did prove to be necessary in connection with a problem that arose).  The architects arranged for the tender for the building work and obtained planning permissions.
(6)	The lift chosen was made by ThyssenKrupp Elevator UK Limited.  It was mounted to the walls of the new building with the guide rails fitted to the wall and the motor gear attached to the walls at a higher level.  When envelope work on the building was complete the lift company installed guide rails, doors, motors and assembled the lift car.  The lift company tested the installation and their engineer inspected it and gave a completion certificate.  The power was supplied by the builder’s electrical sub-contractor.  Other contractors fitted a fire alarm, telephone and emergency call button.  The building work, such as rendering, was then finalised.
(7)	The Appellant would not have been able to perform the services performed by the architect.  The lift manufacturer required the Appellant to approve technical designs and assure the installer of the structural capability of the building and adequacy of power supplies, all of which required professional advice that the Appellant was unable to provide on its own.  The architect’s services were necessarily performed in carrying out the work.
4.	Miss Whipple, for the Appellant, contends in outline:
(1)	The architect’s services were necessarily performed in the installation of the lift on the ordinary meaning of language.  Services necessarily performed in the installation of a lift included related services to the extent that they are necessary for the installation to take place, but not items like décor inside the lift.  The purpose of the zero-rating provision was to relieve charities of the cost of the work.
(2)	The draftsman uses three methods of defining zero-rated services:
(a)	Group 5 item 2: “The supply in the course of the construction of [certain buildings and civil engineering work] 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.”  Alterations to the building are excluded from this item but alterations to a protected building are included in Group 6 item 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 a consultant or in a supervisory capacity.”  The words “in the course of” are wide and would include architects’ services if not specifically excluded.
(b)	Group 12 item 8: “The supply to a handicapped person of a service of constructing ramps or widening doorways or passages for the purpose of facilitating his entry to or movement within his private residence.”  Item 10: “The supply to a handicapped person of a service of providing, extending or adapting a bathroom, washroom or lavatory in his private residence where such provision, extension or adaptation is necessary by reason of his condition.”  This is much narrower as it is limited to the service of the constructing ramps etc. Architects’ services are not included as the Tribunal decided in Strachan v Customs and Excise Commissioners (1986) VAT Decision 2165 followed in Hewitt Ovevall Associates v Customs and Excise Commissioners (1992) VAT Decision 9374.  In the former the Tribunal said: “…[the architect] designs and supervises the construction, but he does not do the work of construction, however desirable or, as many would say, essential his services in connection with the construction may be.”  In the latter, the Tribunal said: “In providing those [the architect’s] services to the client the firm did not ‘do’ the work of construction etc which is what the legislation has specified as attracting zero-rating.”
(c)	Item 17.  Similar wording to item 17 (“services necessarily performed in the installation of a lift”) is used in item 7: “The supply to a handicapped person or to a charity of services necessarily performed in the installation of equipment or appliances…specified in item 2 and supplied as described in that item.”  Item 2 includes such items as medical and surgical appliances, adjustable beds, chair lifts, and hoists.  Item 7 was given a wide meaning by the Tribunal in British United Provident Association Limited (No 2 Prostheses) v Customs and Excise Commissioners (1994) VAT Decision 12180 to include, in relation to a hip joint replacement operation, not only the services of the surgeon or anaesthetist, but the x-ray operator, the analyst carrying out blood tests, the nursing services from the time of arrival at the hospital to the time of departure, and the physiotherapist’s services following the operation.  Only providing food and porterage and cleaning services were not included as not being necessarily performed in installing the hip replacement.  The Court of Appeal in Customs and Excise Commissioners v Wellington Private Hospital Limited and other cases [1997] STC 445 largely dealt with the single or composite supplies aspect and upheld the Tribunal’s decision without commenting on the scope of the zero-rating.  By analogy architect’s services are included in item 17.
(3)	The Engineering Industry Training Board case cited by Mr Zwart was a purposive decision based on wholly different legislation.
(4)	Mr Zwart’s interpretation that item 17 assumes that any alteration has already taken place by the time of the installation involved reading words in.
5.	Mr Zwart, for Customs, contends in outline:
(1)	On the ordinary meaning of language as confirmed by the Shorter Oxford English Dictionary installation is the act of installing something; lift includes the well in which the lift apparatus works; and necessarily means by force of necessity.
(2)	The scope of the zero-rating is the installation, which is the activity of installing and does not include the supervision or planning the activity.  The scope of it is cut down to what is necessarily performed in that installation.  It covers the work of the lift suppliers and the builders who built the structure as this forms part of the lift, but not the architects’ services in design, project management and supervision the work, which is not necessarily performed in the installation because the architects did not actually carry out the installation.
(3)	Item 18, relating to goods, contains a nexus (“in connection with a supply described in item…17”) which does not apply to the services in item 17.  The zero-rating starts at the point of implementation and assumes that prior steps such as obtaining planning permission have already taken place, because it assumes that it is possible to perform the installation.
(4)	Installation of plant was held to include erecting the steam-generating apparatus for an electricity power station in Engineering Industry Training Board v Foster Wheeler John Brown Boilers Limited [1970] 1 WLR 881.
6.	The words in issue in item 17 of Group 12 are “services necessarily performed in the installation of a lift.”  It is common ground that the conditions contained in the rest of the definition are satisfied.  Mr Zwart emphasises the word “installation” and limits the zero-rating to what is necessarily performed in that installation, thus excluding anything that is not installation.  He includes the building work as installation since the building forms part of the lift.  Effectively he reads item 17 as being similar to item 8 (“a service of constructing ramps, widening doorways or passages…”), so that the words “in the installation of a lift” are limited to the services of installing a lift.  Miss Whipple reads the words so that the installation of the lift is the end result and the zero-rating thus includes all the services necessarily performed in achieving that end result.  We consider that Miss Whipple’s interpretation better fits the words used.  If, as Mr Zwart does, one concentrates on the word “installation” one could just as well argue (although he does not do so) that the installation could not be performed until the building into which it is to be installed has been put up, just as he argues that it is implied that planning permission has already been obtained.  The draftsman had two precedents to use, one of which (Groups 5 and 6) specifically excluded architect’s services, and the other of which (item 8 and 10 of Group 12) referred to the service of constructing ramps etc.  He chose different words for item 17 in the same Order (The Value Added Tax (Handicapped Persons and Charities) Order 1986) as redrafted item 10.  If he had intended to limit the zero-rating to the service of installing the lift he could easily have done so by following the item 10 wording, and if had intended to exclude architects’ services he could have included the words in Groups 5 and 6.  We do not detect any significant difference between services performed “in the course of” (the Groups 5 and 6 wording) and “in” the installation of a lift in item 17; in relation to the former it is necessary specifically to exclude architects’ services if that is intended.  While Groups 5 and 6 show an intention to exclude architects’ services in other contexts, each zero-rating stands on its own.  Since installing a lift is a complicated and potentially dangerous process there is no reason to suppose that Parliament impliedly intended to exclude architects’ services where in the circumstances these are necessarily performed in the installation process from this zero-rating that was granted for obvious social reasons.
7.	The zero-rating in item 17 has to cover a wide range of circumstances from replacing an existing lift with one an identical size in the same lift shaft, to the circumstances of the present appeal of building a new building housing a new lift on three sides that must be joined to the existing building on the fourth side, therefore involving building foundations for the new building and the work of joining it to the existing building on the fourth side and to the roof.  In the former, we assume that the lift supplier will do all the work without any outside supervision.  In the latter we are dealing with new building work.  In both cases there is the installation of a lift.  We ask ourselves what services are necessarily performed in that installation.  We consider that it is all the services without which the lift could not have been finally installed.  This includes the architect’s services which are clearly necessary to the installation because without them the building that holds the lift could not have been designed or built.  There is nothing to suggest that the architect performed any services that were not usually performed by architects in designing and supervision of building work, and such services are necessarily performed in building work.  We would include the project viability report and the feasibility report in the scope of this because without it the end result would not have been achieved since the reports identified the best way of achieving the end result.
8.	Accordingly we allow the appeal.  We direct Customs to pay the Appellant’s costs of, incidental to and consequent upon the appeal to be determined in default of agreement by a Tribunal Chairman.

JOHN F AVERY JONES

CHAIRMAN
RELEASE DATE: 3 March 2008

LON/06/1279