19123

ZERO-RATING – Building – Aids for the handicapped – Construction of en-suite bathrooms and wcs for handicapped persons in nursing home – Extension of en-suite facilities into former corridor, construction of new corridor outwith the existing walls – Whether zero-rated – Provision in Notice 701/7 para 6.5 allowing zero-rating of restoring space elsewhere in the building – Whether explanation of law or extra-statutory concession – VATA 1994, Sch 8, Gp 12, Item 11

LONDON TRIBUNAL CENTRE

	 LADY NUFFIELD HOME	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	ANGUS NICOL (Chairman)
						SHEILA WONG CHONG FRICS

Sitting in public in London on 6 June 2005

David Sarson, director for the Appellant 

Shaheen Rahman, counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION ON PRELIMINARY POINT

1.	This is an application for a decision on a preliminary point as to whether the Tribunal has jurisdiction to hear what is left of this appeal.  The appeal itself first came before us in July 2004, when it was adjourned part-heard.  The appeal concerned zero rating of supplies in connexion with the construction of en-suite bathrooms and lavatories for handicapped persons in the Appellant’s nursing home.  During the adjournment of the hearing, certain matters have been settle between the Appellant and the Commissioners, but a substantial part of the appeal has not been agreed.  The issue to be determined is whether paragraph 6.5 of Notice 701/7 of August 2002 gives rise to a ground of appeal, or whether it is an extra-statutory concession.  If it is the latter, then no appeal can arise therefrom.

Notice 701/7

2.	Notice 701/7 is entitled “Reliefs for disabled people”.  So far as is relevant to this application, the Notice contains the following:

“1.	Introduction

1.1	What is this notice about?

This notice explains

•	which goods and services for disabled people are zero-rated for VAT;
•	the declaration a customer needs to give to his supplier.

It has been restructured and rewritten to improve readability, but the technical content has not changed from the August 1994 edition.
. . .
1.4	What law covers this notice?

The VAT Act 1994:

•	Section 30 holds that goods and services specified in Schedule 8 to the Act are zero-rated; and
•	Schedule 8, Group 12 (as amended by SI 1997/2744, SI 2000/805 and 2001/754) specifies the zero-rated goods and services explained in this notice.
. . .
6.	Building and construction

6.1	General

Certain building work is zero-rated in its own right whether or not these buildings include special features that can be used by disabled people, for example the construction of new dwellings and approved alterations to protected buildings.  You will find further information on general rules relating to the VAT liability of building work in Notice 708 Buildings and Construction.

If you supply services of construction or building services that would usually be standard rated, this section explains the circumstances in which you may zero rate your supplies.
. . .

6.3	Bathrooms, washrooms and lavatories

6.3.1	General

You can zero rate the services of providing, extending or adapting a bathroom, washroom or lavatory provided the work is necessary to suit the condition of a disabled person and:

•	in the case of a supply to a disabled person the building is his or her private residence....
•	in the case of a supply to a charity the building is residential accommodation or a day-centre where at least one-fifth (20%) of the individuals using the centre are disabled persons....

6.4	Washrooms and lavatories (but not bathrooms)

Services to a charity of providing, extending or adapting a washroom or lavatory (but not a bathroom) can be zero-rated provided:

•	the service is necessary to facilitate the use of the washroom or lavatory by a disabled person; and
•	The work is carried out in a building or part of a building used principally by a charity for charitable purposes

6.5	Additional construction work in the course of a zero-rated supply as detailed in paragraphs 6.2 to 6.4 above

Where economy and feasibility dictate that you have constructed or extended in the course of a zero-rated supply, and have occupied space which was previously part of another room then you may also zero rate the service of restoring that room elsewhere in the building to its original size.  This is because the work is essential to providing the service to your disabled customer.

Where you provide, extend or adapt a bathroom, washroom or lavatory and, at the same time, construct additional accommodation then you should apportion the supply between its zero-rated and standard-rated parts.  Notice 700 The VAT Guide tells you how to do this.”

We note, and it was pointed out by Mr David Sarson, who represented the Appellant, that there is no mention, either express or by implication, that anything in paragraph 6.5 is an extra-statutory concession.  Taken together with the introduction to the Notice, it appears that paragraph 6.5 is, and is intended to be, an explanation of the law as set out in the 1994 Act.  Paragraph 6.5 is misleading in this respect.

The nature of the appeal

3.	In order to put the present application into context, we set out the grounds of appeal as taken from the notice of appeal:

	“1.	Ensuite toilets (including hand basin) which comply with the Building Regulations requirements for Ambulatory disabled toilets ‘suit the condition of a disabled person’ as specified in VAT Notice 701/7 paragraph 6.3.1 and the cost of provision should be zero rated.

	2.	Provision of Ensuite toilets (both complying with Wheelchair and Ambulatory Disabled Building regulations) and Bathrooms that ‘suit the condition of a disabled person’ (VAT Notice 701/7 paragraph 6.3.1) and the Installation of a lift to facilitate the movement of disabled people (VAT Notice 701/7 paragraph 6.6) should benefit from 100% zero rate relief.  The Commissioners require the zero rated relief to be restricted to the percentage of residents who currently meet the definition of ‘handicapped’.  There is no legal basis for this restriction.

	3.	We apply for 70% of all the construction costs to qualify for zero rated relief. With the dated interior lay out and structure of the Beechcroft Annexe part of The Home, and the current requirements of Building Regulations, Fire Officers, Environmental Health Officers, Health and Safety, County Council Social Services Departments (now the National Care Standards Commission) and others it was not possible to provide en-suite facilities to all seven rooms in the Beechcroft Annexe without demolishing and rebuilding the annexe.

	The works were essential for provision of Ensuite toilets and should qualify for zero rated relief (VAT Notice 701/7 paragraph 6.5).  There were 7 resident rooms in the old Beechcroft Annexe structure, the rebuilding resulted in a total of 10 resident rooms in the same general area with en-suite facilities.  Other works in relation to other resident rooms, the dining room, bathrooms and the laundry also occurred.  The necessity for apportionment to take the extra resident rooms into account is accepted.”

4.	There appear to have been three reviews of the Commissioners’ decision to refuse zero rating, contained in letters dated 11 December 2003, 20 January 2004, and  27 February 2004.  The statement of case was dated 21 June 2004, and set out the Commissioners’ case after all three reviews.  The relevant paragraphs of the statement of case are as follows:

“27.	The Commissioners contend that:
		. . .
	2.	The law referred to above [Schedule 8, Group 12, Items 11, 12, 17 and 18 and Notes (3) and (5)(J)] is very specific and covers the supply of ‘goods and construction services’ only, not the construction of a building to contain them.
	3.	The act does not extend the relief of zero-rating to construction of any additional accommodation under the restoration of the space lost after providing, extending or adapting bathroom, washroom or lavatory and/or installation of lift respectively.
	4.	In practice, it is the policy of the Commissioners to allow zero-rating for the supply of essential construction services in restoring the ‘lost space/accommodation’ elsewhere in the building.  The intention behind this policy is to allow any replacement of ‘like with like’ or ‘replacement of the provision that has been lost’.
	5.	This policy of facilitation is clearly explained in paras 6.1 to 6.9 of VAT Notice 701/7.  Hence the supply of construction services in respect of any additional accommodation would need to be apportioned between its zero-rated and standard-rated parts.
	6.	In light of this, the Commissioners would accept that zero-rating is appropriate for the following.

•	Phase 1 - ground floor - One WC and relevant part of lift installation
•	Phase 1 - first floor - Two  WC and relevant part of lift installation
•	Phase 2 - ground floor - One WC (including shower and bath facility) and relevant part of lift installation
•	Phase 2 - first floor - relevant part of lift installation

It is also noted that the WCs referred to related to those marked with the disability sign on the plans, and the “relevant part” meant that part apportioned as to how much of the floor area was occupied by the zero-rated WC/bathroom.  It was the Commissioners contention that relief should be confined to the wheelchair-disabled WCs and the lift for disabled (as defined in the 1994 Act) residents only.

5.	Although no evidence was taken at the hearing on 6 June 2005, we were told, and it was not disputed, that in order to build en suite facilities of the proportions required it had been necessary to extend the rooms to which the facilities would be attached out into a corridor, and therefore to replace the corridor by building outwith the existing walls.  The Commissioners maintain that such construction works would not be zero-rated. 

6.	In a letter dated 6 August 2004, following a meeting between Mr Sarson and Mr Peter Jennings of the Oxford Business Centre of Customs and Excise, Mr Jennings said:

“It is agreed that VAT relief will apply to:

	(a)	the cost of constructing 10 disabled en-suite WCs and the disabled shower-room - Phase 1, the Annexe - carried out to suit the condition of the disabled residents, with the works being necessary by reason of the condition of the handicapped residents;
	(b)	the cost of constructing 2 disabled en-suite WCs, disabled bathroom and disabled shower-room - Phase 1A - carried out to suit the condition of the disabled residents, with the works being necessary by reason of the condition of the handicapped residents;
		(c)	the lift;
	(d)	the conversion of the 2 old bedroom spaces into a dining-room.”

That clearly does not include the extension of the en suite facilities into the corridor and the reclamation of the space outwith the building.  However, in a letter dated 13 December 2004, Mr Jennings said that the installation of a nurse call system would be zero-rated, and he continued:

“Phase 2 of the building works involves the conversion of a corridor at the Lady Nuffield Home, Summertown into 10 disabled en-suite WCs for the use of the residents, the works being necessary by reason of the condition of the handicapped residents.

As a consequence of the decision by the Commissioners notified to you in my letter dated 30 July 2004, it was accepted that VAT Relief can apply to the costs which are directly incurred in the provision of bathrooms, washrooms, lavatories and other facilities specifically designed for use by the disable residents.

It is accepted that Phase 2 of the construction works involving the provision of 10 disabled en-suite WCs for the use of handicapped residents falls within the criteria and conditions for VAT Relief applicable to Phases 1 and Phase 1A, as outlined in my letters dated 30 July 2004 and 6 August 2004.”

That appears to mean that the Commissioners accept that the extension into the corridor of the ten en suite WCs is eligible for zero rating.  We understand, though it is not wholly clear from the correspondence, that if that is so, all that remains in dispute is the zero rating of the reclamation of the space by constructing a new corridor, at ground and first floor levels, outwith the previously existing walls.

Schedule 8, Group 12

7.	So far as is relevant to this appeal, Group 12 of Schedule 8 to the Value Added Tax Act 1994 provides as follows:

GROUP 12 – DRUGS, MEDICINES, AIDS FOR THE HANDICAPPED, EC

Item No.

…

11.	The supply to a charity of a service of providing extending or adapting a bathroom, washroom or lavatory for use by handicapped persons—

(a)	in residential accommodation, or
(b)	…

where such provision, extension or adaptation is necessary by reason of the condition of the handicapped persons.

The Appellant’s contentions

8.	Mr Sarson contended that since the provision giving rise to the appeal, paragraph 6.5 of Notice 701/7, was in a VAT notice, the purpose of which was to expand upon the law and give guidance on it, it was not an extra-statutory concession.  The word “concession”, he said, appeared nine times in the Notice, but not in paragraph 6.5.  Paragraph 3.10 referred the reader to Notice 48 “Extra-statutory concessions”.  Paragraph 4.5.6 referred the reader to section 9, which listed two express concessions.  Notice 48 is a list of extra-statutory concessions, and does not include paragraph 6.5 of Notice 701/7.  Nor is paragraph 6.5 included in Notice 747 “VAT Notices with the force of law”.  Paragraph 6.5 was, Mr Sarson contended, a statement and explanation of the law and of how the Commissioners apply that law.

9.	In the statement of case, Mr Sarson said, it was stated as a fact that paragraph 6.5 is a concession, though there was no explanation of why it was said so to be. In the Commissioners’ skeleton argument it was mentioned simply as an afterthought.  Mr Sarson also referred to an explanatory leaflet provided by the Tribunal, which did not state that a failure to operate a concession could not be appealed.

The Commissioners’ contentions

10.	Miss Shaheen Rahman, for the Commissioners, began by saying that section 83 of the Value Added Tax Act 1994 contained a complete list of all those decisions against which an appeal lay to the Tribunal. It was, she said, regrettable if the Appellant had been confused by Notice 701/7, but the law was set out in section 83 and not elsewhere.  In Schedule 8, Group 12,  the wording of Item 10 did not include what was set out in paragraph 6.5 of Notice 701/7.  The introduction to Notice 747 did not include paragraph 6.5, which has, therefore, not acquired the force of law.  Group 12 did not include any reference to the economy and feasibility argument which was a part of paragraph 6.5.  The introductory paragraph 6.1 did not suggest that paragraph 6.5 had the force of law or was appealable. That paragraph was not tertiary legislation, and no appeal could arise from it.

11.	Miss Rahman referred to the Tribunal decision in Greenwich Property Ltd v Customs and Excise Commissioners (2000) (Decision 16746).  That decision was concerned with the issue whether the Commissioners’ refusal to apply a concordat, which was a non-statutory concession, could be a prior decision giving rise to an appeal under section 84.  It was held, following the decision of Hidden J in Customs and Excise Commissioners v Arnold [1996] STC 1271, that the Tribunal had no jurisdiction with regard to the operation of extra-statutory concessions, which were matters solely for the Commissioners.  This Tribunal is bound by that decision.

12.	It was of no significance, Miss Rahman said, that the statement that paragraph 6.5 was a concession only appeared at the end of the statement of case and of the skeleton argument.  What mattered was whether that paragraph had the force of law.  The Commissioners had always maintained that it was a concession.

The Appellant’s reply

13.	Mr Sarson referred to Item 11 of Group 12, and contended that if you are in a position where you have a room which you wish to make into an en suite lavatory, but due to its physical location it is necessary to create a space, for instance in the next room (this being especially so in residential accommodation, in which the rooms have to be of a certain minimum size), so that the next door room has to be enlarged into the garden, the supply of construction services to achieve this is part of the total cost of the building works which should not be limited to just the bricks and other materials that go into the space of the washroom. That was within the ambit of Item 11.  Paragraph 6.5 explained and followed on from Item 11.  Miss Rahman rejoined that there was no nexus between paragraph 6.5 and Item 11; it was not accepted that paragraph 6.5 could be added to Item 11 to give that paragraph the force of law.

Conclusions

14.	It is correct to say that section 83 of the 1994 Act contains a complete list of all matters which can be the subject of an appeal to this Tribunal.  It is also correct that this Tribunal cannot entertain an appeal arising out of the failure of the Commissioners to apply an extra-statutory concession, as was held in Arnold and in Greenwich Property. The latter was a case in which that was the issue to be determined, unlike the present case, in which the issue is really whether or not paragraph 6.5 is an extra-statutory concession.

15.	Mr Sarson’s valiant and well structured argument sought to introduce paragraph 6.5 into the law through Item 11.  This was an interesting and attractive concept, but unfortunately is defeated by Item 11 itself, the wording of which extends only to the “supply to a charity of a service of providing, extending or adapting a bathroom, washroom or lavatory for use by handicapped persons in residential accommodation.”  It does not extend to the expansion of another part of the residential premises into which it has been necessary to provide or extend the bathroom, washroom or lavatory.  That Item 11 is so hair-splitting as to stop short of what might be necessary to accommodate the newly constructed bathroom is confirmed by Item 13, which includes into the zero rating the necessary supply of goods in connexion with Item 11.  But for Item 13 the zero rating would apply only to the services, not to the goods.  It is therefore clear that paragraph 6.5 is not included in Item 11.

16.	What, then, is the nature of paragraph 6.5?  If it were the law, there is every reason to suppose that it would have been included expressly in Group 12, but it is not to be found there. If it is not the law, but covers a circumstance in which the Commissioners allow zero rating which is, strictly, outwith the law, then it is and can only be a concession. We agree that the drafting of Notice 701/7 leaves quite a lot to be desired.  It is by no means clear at first sight that paragraph 6.5 is an extra-statutory concession. When the Notice also contains parts which are expressed to be concessions, and no such description qualifies paragraph 6.5, in our view someone who is not a lawyer can be pardoned for believing that it is not a concession.  Further, it is so near to a situation which cannot be unique in providing and extending bathrooms that it does appear, and clearly so appeared to Mr Sarson, to follow logically on from Item 11 as being something that can in many cases be necessary.

17.	For the above reasons we can only conclude that paragraph 6.5 is an extra-statutory concession. That being so, no appeal to this Tribunal can lie from the Commissioners’ refusal to apply it in the Appellant’s case. We have a lot of sympathy for the Appellant, but we have no alternative but to decide this point in favour of the Commissioners.

18.	No application was made for costs. Accordingly, we make no order as to costs.

ANGUS NICOL
CHAIRMAN

RELEASED: 20 June 2005

LON/04/248