Customs and Excise v Tinsley

This is an appeal by Her Majesty’s Customs and Excise from a decision of the VAT Duties Tribunal dated 22 February 2002. It concerns the question of whether certain construction work is zero-rated. The case concerns the construction of a terrace at a protected building called Narborough Hall. The relevant facts are set out in the Tribunal decision as follows.

“It is common ground that Narborough Hall is a protected building. In 1997 certain work was undertaken which included the works which are the subject of this appeal and which were the construction of a terrace on four levels. This terrace came right up to and joined the house itself. We were shown a number of photographs of the terrace in its completed form. The first level, which is physically connected to the house, can be accessed directly from the house and, in the photographs shown to us, a table and chairs had been placed near a door out of the house. This first level is of York stone with a brick edging and shallow steps leading from it to the second level which is of a similar construction and leads to the next level which is partly constructed of gravel with the same brick edge and a large central bed seeming to contain shrubs. This level also has steps which lead to the fourth level which is grass-covered. The cascade of levels has its highest point by the house and its lowest point at the grass-covered area.”

The works also included the erection of what are referred to as wing-screen walls and garden works. The overall effect is to create a commodious terrace in the garden. That terrace abuts Narborough Hall although the wing-screen walls and certain trelliswork attached to those walls do not abut the building itself. The Tribunal decided that this work was zero-rated. The question of whether or not this work is zero-rated for VAT purposes is dependant upon the effect and application of certain provisions of the VAT Act 1994 as explained in the recent decision of the House of Lords in Customs and Excise Commissioners v Zielinski Baker and Partners Ltd [2004] UKHL 7.

Zielinski Baker is the crucial authority in relation to the issues before me and was considered to be a test case. It was because it was known that that case was to be considered by the House of Lords that the current appeal was stayed pending the outcome in that case. As a consequence of the House of Lords’ decision, on this appeal the respondent taxpayer is not represented. I am told by Mr Harris, who appears for the appellant, that his client has agreed that, no matter what the outcome of this appeal, it will not seek any costs of this appeal from the respondent nor will it seek to disturb the costs order made below in the Tribunal.

The relevant VAT legislation is as follows. Item 2 of Group 6 of Schedule 8 of the 1994 Act zero-rates:

“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.”

In this case question of the services of an architect, surveyor or any other person arises for consideration. Note 1 to Group 6 defines “protected building” as follows:

“A ‘protected building’ means a building which is designed to remain as or become a dwelling or number of dwellings and which in either case is:

(a)

a listed building within the meaning of:

(i)

the Planning (Listed Buildings and Conservation Areas) Act 1990.”

Note 2 provides as follows:

“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.”

Section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990 reads as follows:

“In this Act ‘listed building’ means a building which is for the time being included in a list compiled or approved by the Secretary of State under this section; and for the purposes of this Act:

(b)

any object or structure within the curtilage of the building which, although not fixed to the building, forms part of the land and has done so since before 1 July 1948 shall be treated as part of the building.”

The Customs and Excise’s case is simple. There are three relevant requirements in the Note 1 definition of “protected building” all of which need to be satisfied in order to qualify for zero-rating. They are (1) that the work or services must have been supplied in the course of the alternation of “a building” and, (2) the building in question must have been “designed to remain as or become a dwelling” and, (3) that the building in question must have been a “listed building”. It says that on the facts of this appeal two of the three requirements are not met, namely the work or services were supplied in the course of the alteration of a garden not a building and, second, the garden to which the works were done was not designed to remain as or become a dwelling. If that is so, that disposes of this appeal. It does not matter for this purpose that Narborough Hall is a building and that the works themselves were the subject of listed building consent or planning permission. What counts is whether the three cumulative requirements of Note 1 are met.

In Zielinski Baker, the taxpayer was converting an outbuilding into changing rooms for a pool he was building. Lord Nicholls explains:

“3.

In the present case the approved alterations comprised alterations, not to the main house, which is a listed building, but to an adjacent outbuilding within the curtilage of the main building. The outbuilding is five yards away from the main building. The two buildings are not linked structurally, although they are linked by a substantial stone wall. Thus, and this is accepted on all sides, although the outbuilding is a separate building, for listed building purposes it is to be treated as part of the listed building.

4.

The works in dispute comprise conversion of the outbuilding into games and changing facilities and the construction of an adjoining indoor swimming pool.”

The former uses of the outbuilding were described by Lord Walker of Gestingthorpe as follows:

“The outbuilding (sometimes referred to in the course of the appeal as a barn) was built of sandstone at the same time as the house. It has over the years been put to a variety of uses. Initially it was a stable, carriage shed and tack room; latterly it had been used as a garage and laundry and to store a deep freeze.

It will be appreciated that the outbuilding had never been used as a dwelling nor did the alterations to it turn the outbuilding into a dwelling. The House of Lords decided that this work was not zero-rated. The reasons can be gleaned from the speech of Lord Brown of Eaton-under-Heywood:

“54.

Put compendiously, therefore, the question now arising is whether this supply of services was ‘in the course of an approved alteration of a building which is designed to remain as or become a number of dwellings and which is a listed building’.

55.

There is no dispute that the works constitute an approved alteration of a building. The critical question, however, is which building for the purpose of item 2 was being altered: was it the house or was it the outbuilding? If, as the taxpayers contend and the majority of the Court of Appeal held, it was the house, there can be no doubt that it was to remain as a single dwelling and was a listed building. If, however, it was the outbuilding, there can equally be no doubt that it was neither to remain as nor to become a dwelling and nor, indeed, was it a listed building.

61.

If, indeed, the alteration carried out in this case, although ‘in a practical sense to the outbuilding’, is ‘more naturally’ to be considered an alteration to the house, then clearly it is alteration of a protected building and so attracts zero rating. To my mind, however, there can be no escaping the plain fact that the actual building altered here was the outbuilding and not the house. True it is that the requirement for these works to be authorised rested upon the fact that, under the extended definition of ‘listed building’ in section 1(5) of the 1990 Act, a listed building was being altered. That, however, appears to me an insufficient basis for ignoring the simple physical reality, namely that here it was the outbuilding itself which was being altered. It is not to the actual work of alteration that item 2 is directed. Either the building which is itself being altered is a protected building as defined or it is not. Here it is not.”

It will be appreciated that in Zielinski Baker work was actually being done to alter a building. That is not the case here. Applying the Zielinski Baker approach to the facts in this case, although the top level of the new terrace touches the bottom of the side wall of Narborough Hall, it can be seen that the alterations were done to the garden not to Narborough Hall. Furthermore, the work carried out in the garden left it as part of the garden which was not designed to remain as or to become a dwelling. I accept Mr Harris’s argument that, for the two reasons he advances on the particular facts of this case, these works do not qualify as zero-rated.

Mr Harris concedes that each case will need to be considered on its own facts. The degree to which work can be regarded as incorporated into and altering a relevant building will vary from case to case. Just because work is carried out in large part to an area of what is or was a garden does not mean of itself that it is impossible for it to be considered as an alteration to the building. On the other hand, Zielinski Baker now clarifies the correct approach to determine whether zero-rating is appropriate. In this case the VAT Duties Tribunal did not have that decision before it and it failed to ask what was altered by the works for which zero-rating was sought. If it had done so, it would have concluded that the alterations were done to the garden not to the building. It would have concluded that they did not qualify for zero-rating.

Mr Harris has also drawn my attention to two pre-Zielinski Baker decisions of the Tribunal, namely Powell, Tribunal VTD 14520 and Mason, Tribunal VTD 16250. The correctness of those decisions must now be seriously in doubt in view of the clarification of this area of law by the House of Lords.

There is no order for costs.