When the VAT legislation just isn't enough

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The use of a building and its connections to any surrounding buildings can determine whether the construction is zero-rated for VAT, as Marie Stein explains.

HMRC challenged the zero-rating of the construction of a new teaching block at St Brendan's Sixth Form College (TC06384). As St Brendan's is a charity which provides further education, its new building could be zero-rated under the "relevant charitable purposes" criteria, if:

  • the block was a new building in its own account, or
  • an annex to the adjacent property.

The decision itself is a very helpful analysis of the zero-rating available under the provisions of VAT Act 1994, Schedule 8, Group 5, notes 16 and 17; particularly the implications of a link to an existing property and disabled access.


The new block included an additional teaching space, a cafe, toilets, staff room and an area for students.

There are two ways to access the property: the main entrance is the front door and it can also be accessed via a covered walkway that links the building to a separate building at first floor level. There is no internal access to the first floor for wheelchair users as there is no lift from the ground floor. Using the walkway from the adjacent building is possible but not very practical.

However, wheelchair users are accommodated by ensuring that classes for pupils who use wheelchairs are always on the ground floor. In practice, this affected a very small number of pupils, usually only one or two individuals each year.

HMRC's arguments

HMRC argued that the zero-rate did not apply to the construction work because the link to the neighbouring building meant that the new property was not a separate building.

Alternatively, the new building was not an annex of the adjacent building for "relevant charitable purposes", because the wheelchair access issue meant that the building was not capable of functioning independently.


Schedule 8 of VATA 1995 sets out items which may be zero-rated, and group 5 deals with the construction of buildings. Item 1 (a) (ii) of group 5 allows zero-rating if the building is intended solely for a relevant charitable purpose. Notes 16 and 17 restrict the application of “charitable purpose” where the construction work is:

  1. the conversion, reconstruction or alteration of an existing building;
  2. any enlargement of, or extension to, an existing building; or
  3. the construction of an annexe to an existing building (Note 16).

However, Note 17 clarifies that Note 16 c) allows construction costs to be zero-rated where all or part of the annexe is intended for use solely for a relevant charitable purpose and:

  1. the annexe is capable of functioning independently from the existing building; and
  2. the only access, or where there is more than one means of access, the main access to:

(i) the annexe is not via the existing building; and

(ii) the existing building is not via the annexe.

Within the legislation or not

The tribunal ruled that the existence of the walkway to the adjacent building didn't prevent the building from being a “new building in its own right”, because the walkway's only function was to link the two buildings.

The tribunal also ruled that even if it was not a building in its own right, then the new building fell within the provisions of Note 17 as an annexe. The existence of the walkway was not relevant because the main access to each of the buildings was from its own front door and not via the other building; therefore meeting the criteria of Note 17(b).

Note 17(a) requires that the building must be capable of functioning independently, such as with its own toilet facilities or heating system. In this case, HMRC argued that the new building could not function independently because there is no access to the first floor for wheelchair users.

The tribunal considered the requirements set out in the Equality Act 2010, which sets out the principle that a disabled person is not at a disadvantage in comparison to non-disabled person. The tribunal considered that this would apply to the ability to access and move around a building. The question was whether the arrangements for wheelchair users - where all classes were scheduled in ground floor rooms - was sufficient for the building to function independently.

Independent functionality

The tribunal believed that the arrangements were sufficient and ruled in favour of the college. The lack of access to part of the building, which that the disabled pupils did not need to use, was "taking this point way beyond any sensible approach".

The construction of the new building was therefore eligible for the zero-rate of VAT.

About Marie Stein

marie stein profile picture
Marie Stein has worked in VAT since starting with HMRC in 1981. Since leaving HMRC in 1985, she has since worked her way through all of the Big Four accountancy firms (in one guise 
or another!) and a couple of others before starting her own consulting business in 2009.
Marie Stein can be contacted at [email protected]. Her books "VAT for residential property developers and contractors" and "VAT for DIY property developers" are now available in paperback from Amazon.co.uk
She now runs her own successful website www.vatexchange.co.uk and has published two books: VATWoman's Guide to VAT and residential property development: How to save VAT and manage the process; and VATWoman's Guide to inter-company services, management charges, cost sharing and much more: Dealing with VAT on transactions with associated businesses.


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22nd May 2018 14:09

Good article Marie

Somewhat mean spirited of HMRC to refuse in these circumstances

Thanks (1)