In a case which gives useful guidance on the difference between ‘new build ‘ and extension or enlargement of existing properties, the builders of a substantial nursing home which had an old church as its centre-piece have convinced the First-Tier Tribunal that the entire construction project should be exempted from VAT.
The builders constructed the 72-bedroom nursing home in accordance with a planning permission which was conditional upon retention of the previously derelict church. Whilst the exterior of the church was maintained in its original form, as required by planners, three substantial wings were added to it and its interior was converted for uses ancillary to the nursing home business.
The builders argued that the project should be zero-rated for VAT as the entire building was designed and intended for use solely for a relevant residential purpose within the meaning of the VAT Act 1994. Her Majesty’s Revenue and Customs, however, insisted that a reduced rate of 5% VAT was payable on the basis that the project amounted to an extension or conversion of the existing church building.
Upholding the builders’ appeal, the Tribunal noted that the footprint of the church was only 315 square metres as against the new buildings which had a footprint of 2,910 square metres. Apart from the church, all other existing buildings on the site had been levelled prior to the nursing home’s construction.
Although the church had remained the focal point of the development when viewed from one angle, the Tribunal found that it had been ‘dwarfed’ by the new wings and that it would be a misnomer to describe the latter as merely an enlargement of the former. Ruling that the builders had not forfeited the VAT exemption by incorporating the church into the overall development ‘in a very attractive way’, the Tribunal found that the sheer scale of the construction work meant that no objective observer would view the new wings as merely an extension of the existing church.