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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Agudas Israel Housinf Association Ltd v Customs and Excise [2004] UKVAT V18798 (15 October 2004) URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18798.html Cite as: (2004) VTD 18798, [2004] UKVAT V18798

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18798

ZERO-RATING – construction of buildings – construction of eight residential units as a new third floor of existing building – each unit consisted of a bed sitting room with en suite shower room - whether supply in the course of construction of a building designed as a number of dwellings – whether each dwelling consisted of self-contained living accommodation – yes - appeal allowed – VATA 1994 Sch 8 Grp 5 Item 2 Note (2)

LONDON TRIBUNAL CENTRE

AGUDAS ISRAEL HOUSING ASSOCIATION LIMITED

Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE

Respondents

Tribunal: DR NUALA BRICE (Chairman)

MR M SILBERT FRICS

Sitting in public in London on 2 September 2004

John Voyez of Smith and Williamson Limited for the Appellant

Ian Hutton of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004


 



 


DECISION

The appeal

1. Agudas Israel Housing Association Limited (the Appellant) appeals against a decision of Customs and Excise contained in a letter dated 19 March 2003 addressed to the representatives of Springdale Limited. The decision was that the supply by Springdale Limited to the Appellant of services in the course of construction of a new third floor on an existing care home for the elderly owned by the Appellant was a standard-rated and not a zero-rated supply. The Appellant appealed because it was of the view that the supply was a zero-rated supply.

The legislation

2. Section 30(2) of the Value Added Tax Act 1994 (the 1994 Act) provides that a supply is zero-rated if the goods or services are of a description for the time being specified in Schedule 8. Group 5 of Schedule 8 specifies certain supplies relating to the construction of buildings. Item 2(a) of Group 5 specifies:

"2. The supply in the course of the construction of –

(a) a building designed as a dwelling or a number of dwellings …

of any services relating to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity."

3. Note (2) to Group 5 provides:

"(2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied-

(a) the dwelling consists of self-contained living accommodation … ."

The issue

4. The third floor extension constructed for the Appellant by Springdale Limited contained eight residential units each of which the Appellant claimed were self-contained living accommodation. Customs and Excise argued that the residential units were not self-contained because they did not contain adequate cooking facilities; it followed that the building was not designed as a number of dwellings within the meaning of Note (2)(a) and so the supply of services in the course of its construction could not be zero-rated under item 2(a) of Group 5 of Schedule 8.
5. Thus the issue for determination in the appeal was whether each residential unit was designed as a dwelling consisting of self-contained living accommodation.

The evidence

6. A bundle of documents was produced by the Appellant and another bundle was produced by Customs and Excise. Oral evidence was given on behalf of the Appellant by Mr John Stebbing RIBA and by Mrs I Cymerman (formerly Mrs I Symons) the Chief Executive of the Appellant since 1982.

The facts

7. From the evidence before us we find the following facts.

The Appellant and its work

8. The Appellant is a registered social landlord and an industrial and provident society with charitable status. Its activities include the provision of supported housing for people with special needs and general housing for elderly members of the community. Its main areas of operation are in the London Boroughs of Hackney and Barnet and in Salford, Greater Manchester. The Appellant's services are tailored to the needs of the Orthodox Jewish community.
9. The Appellant has premises at Schonfield Square in North London. The premises include sixty houses and flats for general needs and a large building which provides housing for the elderly. This building is split vertically into two. One part is known as Fradel Lodge and this provides twenty-seven sheltered flats for the elderly. The other part is known as Beis Pinchos and was constructed in the 1990s.
10. Before the construction the subject of this appeal Beis Pinchos was used only as a registered care home for the elderly. The residents were physically frail and were likely to need nursing intervention. They were looked after all day and some were looked after at night. They were assisted with getting up in the morning and were taken to a communal dining room on the ground floor for their meals. They could also use a communal day care or sitting room. Their bedrooms had en suite shower rooms but they could also use communal bathrooms. Each bedroom had a front door with a window for staff to monitor their well being.

The need for additional accommodation

11. In late 1998 the Appellant identified the need for additional accommodation and Mr John Stebbing was instructed as architect. The brief to Mr Stebbing was for eight or ten residential units for people with Alzheimer's disease, dementia or similar illnesses. The residential units were to provide permanent accommodation and were to be constructed to lifetime standards as funding was to be provided by the Housing Corporation which would provide financial support on the basis of "lifetime homes".
12. The brief to Mr Stebbing also required the design of residential units which would allow for flexible independent living for the residents. Flexibility was required because of the variety of care provision which could be needed. The accommodation also had to be secure and safe, bearing in mind the illnesses of the residents, although it was expected that the residents would be supported by the social services, their families, the Orthodox Jewish community and care staff. Plans were initially prepared on the basis that the residential units would be built on the ground floor of a new site.
13. However, it proved impossible to identify a new site on which the new construction could take place and so Mr Stebbing suggested that the proposed new residential units be constructed on top of Beis Pinchos. Accordingly the original design was adapted to be built as a new third floor of Beis Pinchos and an application for planning permission was made on 17 May 2000.
14. On 11 July 2001 Hackney Borough Council gave conditional planning permission for the "erection of a new third floor to existing building to provide additional care accommodation" at Beis Pinchos, Schonfield Square. Paragraph 8 of the conditions read:

"8. As your proposals contain a flat, and/or a dwelling in the building where previously it did not, the requirements in the Building Regulations 1991, with regard to the resistance to the passage of sound, may have major implications on your proposals. You are therefore advised to undertake an early consultation with the Building and Development Control Service .. .".

15. The construction was completed in February 2003.

The new residential units

16. We saw a plan of the proposed third floor dated 25 October 2001. Access to the third floor is either from one of two communal staircases or by lift. These give the residents of the third floor direct access to Schonfield Square. Internally, the staircases and lift give onto a common hallway from which access can be gained to a communal room and a visitor's lavatory (both of which we were told could be used by visitors to, or members of the family of, residents) and a cleaning store. Part of the common hallway widens out and is used as a communal sitting area and as office space for the Appellant's staff. From the common hallway access can also be gained to the eight new residential units each consisting of a bedsitting room with an en suite shower room. Two of the units are accessed from a small lobby which itself is accessed from the common hallway. These two units are occupied by two sisters. There was a conflict of evidence as to whether there was a basin in each bedsitting room as well as in the shower room. Mr Stebbing thought not and the plan we saw supports his view but Mrs Cymerman said there was. As Mrs Cymerman is at the building daily, and as the plan may well have been adapted since it was prepared, we prefer her evidence and find that there was a wash basin in each bedsitting room.
17. We also accept the evidence of Mrs Cymerman that the communal areas on the third floor are furnished like a hotel and that the residents are treated as if they lived in a hotel to compensate them for losing their homes. The third floor "has the feeling of a luxury place".
18. By way of comparison we saw a plan of the ground, first and second floors of Beis Pinchos dated 3 May 2000. On this plan each bedroom on the first and second floors was very similar in size and layout to the new residential units which were later built on the third floor. However, on the first and second floors there were fewer residential units and more communal areas. The equivalent of the communal room on the third floor was used as a lounge on each of the first and second floors. There was a hairdressing room on the first floor which we were told could be used by the residents of the third floor for payment.
19. Each of the new residential units on the third floor has its own door with a lock and key. There are no windows in the doors on the third floor. Keys are held by the residents and their families and friends. Mrs Cymerman also has a key. The residential units on the third floor have not been specially adapted for use by disabled people except that there is level access to the showers. The furniture and television in each unit is provided by the resident.

The residents of the new units

20. Each resident of the new residential units has a residency agreement and pays a weekly rent and also pays for cleaning services. Each resident is provided with care in his unit by the Appellant's nursing and care staff. There is a separate rota for staff working with the residents of these units. The level of care depends upon the individual resident's needs.
21. The residents of the units on the third floor are frail and elderly members of the Orthodox Jewish community suffering from differing degrees of Alzheimer's disease. Each unit is the principal place of residence for its resident and it is intended that the residents will live in the units for the rest of their lives; for each resident the unit is his or her home. In most cases the resident's previous home has been sold or rented out. The residents are free to come and go as they please and to receive visitors at any time. Visitors do not need permission from the Appellant's staff to visit and may stay as long as they like. One resident's daughter who does not live locally visits her mother for several days at a time, staying overnight in her mother's unit. The residents retain their personal independence.
22. The daily routines for the residents of the third floor differ from those of the other residents of Beis Pinchos; each resident of the third floor has a different routine and gets up and has breakfast at different times. Each makes his own decision as to whether to join in the general programmes.

The cooking facilities

23. Each third floor unit could have a refrigerator, kettle and microwave cooker. However, individual residents have differing lifestyles and needs and they follow their own routines. They have varying arrangements for taking meals. Some take their meals in the dining room on the ground floor of Beis Pinchos. Although there is one resident who has never made use of the dining room, others use it on a daily basis. Some residents have meals provided by the main kitchen in Beis Pinchos but brought to the third floor and either eaten in the communal area or in their own rooms. Some have meals brought in by relatives or friends. The children of one resident regularly bring in meals for their parent to eat in his room. Others residents might have meals supplied by Meals on Wheels. Thus residents may prepare simple meals in their rooms or they may have meals brought in or they may eat out.
24. In considering the provision of cooking facilities two factors have to be borne in mind. First, kettles and microwave ovens may only be installed if it is safe for the resident to have them. Secondly, the residents are of the Orthodox Jewish Community.
25. We accept the evidence of Mr Stebbing that the Orthodox Jewish community has strict requirements for cooking food, including separate arrangements for milk and meat, and for that reason a large kitchen is required. The house kitchen at Beis Pinchos, which prepares the food for the communal dining room, meets all these requirements. Mr Stebbing thought it possible to produce a Kosher meal in one of the third floor residential units but he did not know how it was done.

The arguments of the Appellant

26. For the Appellant Mr Voyez argued that the residential units on the third floor were no different from any other self-contained flats. He cited Uratemp Ventures Limited v Collins HL [2001] 3 WLR 806 as relied upon in Amicus Group Limited v The Commissioners of Customs and Excise (2002) VAT Decision No. 17693 as authority for the view that the room of a long term resident with virtually no cooking facilities constituted a dwelling. He distinguished University of Bath v The Commissioners of Customs and Excise (1996) VAT Decision No. 14235 where the construction was of temporary short term student accommodation whereas in this appeal the Appellant's construction was designed to provide long term dwelling accommodation. He relied upon the more recent decisions of the Tribunal in the appeals of: Oldrings Development Kingsclere Limited v The Commissioners of Customs and Excise (April 2002) VAT Decision No. 17769 where studios in which the basic elements of living could be carried on were held to be self-contained living accommodation; Kingscastle Limited v The Commissioners of Customs and Excise (June 2002) VAT Decision No. 17777 where a room with a shower and toilet accommodation nearby and the use of a kitchen on the ground floor, was held to be a dwelling because that was where the occupants lived and treated the accommodation as their home; and on Nick Hopewell-Smith v The Commissioners of Customs and Excise (June 2000) VAT Decision No.16625 where the Tribunal held that a converted barn was self-contained living accommodation as it had all the ingredients of a dwelling. He referred to Tolley's VAT on Construction, Land and Property at pages C2 [10] to [12].
27. Mr Voyez agreed that the communal areas on the third floor should, perhaps, be standard-rated.

The arguments of Customs and Excise

28. For Customs and Excise Dr Hutton accepted that each residential unit was the home of its resident and that the residential units were dwellings. However, he argued that each dwelling did not consist of self-contained living accommodation. He also argued that the units had to be designed as self-contained living accommodation and he relied upon the terms of the planning consent of 11 July 2001 which was for the provision of additional care accommodation which indicated, at the time of the design, an intention to integrate the third floor with the lower floors. Further, he argued that the units were not designed for the preparation of food and the ability to prepare food was essential to self-contained accommodation. He cited Look Ahead Housing Association v The Commissioners of Customs and Excise (2000) VAT Decision No 16816 at paragraph 9 for the principle that the social reasons for zero-rating the construction of certain buildings was to promote the building of new housing and this was not the creation of new housing and at paragraphs 15 and 16 for the principle that what Note (2) does is to impose conditions which something which is otherwise a dwelling has to satisfy and is directed entirely to the building resulting from the relevant works of construction.. He distinguished Amicus Group which was not concerned with Note (2).and considered only whether a property was a dwelling. He relied upon University of Bath for the principle that in applying the words of the legislation it is necessary to consider the exact words and in this appeal it was only the words "self-contained living accommodation" which were relevant. He cited St Catherine's College v Dorling [1980] 1 WLR 66 at 71 for the principle that the word dwelling included all the major activities of life, particularly sleeping, cooking and feeding and so a room which was devoid of cooking and a water supply and was unfurnished and not slept in was not a dwelling and the tenancy was not protected. He also cited University of Kent v The Commissioners of Customs and Excise VAT Decision No. 18625 where lack of cooking facilities had meant that accommodation was not self-contained. In this appeal the presence of so many communal parts indicated that the residential units were not self-contained.
29. Alternatively, Dr Hutton argued that the communal parts on the third floor were not self-contained living accommodation and so could not be zero-rated.

Reasons for decision

30. In considering the arguments of the parties we begin with the legislation. What we have to do is to decide whether the new construction was "a building designed as a number of dwellings … where each dwelling consists of self-contained living accommodation" within the meaning of Note 2(a) of Group 5.
31. We begin our consideration of the cases cited to us with Uratemp (2001) which is a decision of the House of Lords. In Uratemp the issue was whether a resident had an assured tenancy under the Housing Act 1988. He was a long-term resident occupying a single room in a hotel. The room contained a bed, furniture (some of which was provided by the resident), a shower and a basin. There were no cooking facilities but the room had a power point and the resident used a toasted sandwich maker, a pizza warmer, a kettle and a warming plate to prepare and heat simple meals. He also brought in ready made meals which he ate in his room. The House of Lords held that the word "dwelling" in the 1988 Act was not a term of art but was used to connote where a person lived, regarding it and treating it as home. There was no legislative requirement for cooking facilities to be available and a room did not cease to be a dwelling solely because the occupant's meals were eaten elsewhere or were brought in. They also held that whether the premises qualified under the 1988 Act depended upon all the circumstances of the case and having regard to the statutory objective. It was considered relevant to the decision that the occupant did not enjoy any space or facilities in common with other occupants (see paragraph 9).
32. We have approached this authority with some caution because the legislation which applied in that appeal is different from the legislation which applies in this. Also, although the facts are similar they differ in one important respect, namely that in that appeal the occupant did not enjoy any space or facilities in common with other occupants whereas in this appeal the occupants of the residential units enjoy the communal spaces (lounges and dining room) on both the third floor and the other floors of Beis Pinchos. Having said that, however, and as it was accepted by Dr Hutton, we find in this appeal that each residential unit was a dwelling because it was where the resident lived, regarding it and treating it as home and it did not cease to be a dwelling solely because the resident's meals were eaten elsewhere or were brought in.
33. That means that we are of the view that the new construction was a building designed as a number of dwellings. However, that does not decide the appeal because we also have to decide whether each dwelling consists of self-contained living accommodation within the meaning of Note 2(a) of Group 5. To do this we consider the Tribunal decisions to which the parties referred. These fall into two categories. There are three which concern legislation very similar to that at issue in this appeal. The others concern legislation or issues not relevant in this appeal. We consider the first category first.
34. In Nick Hopewell-Smith (June 2000) the issue was whether a barn was a dwelling within the meaning of item 2 of Group 8 of Schedule 8 which referred to "a building designed as or to become a dwelling or a number of dwellings as defined in note (2)" Note (2) provided that a building was designed as a dwelling if the dwelling consisted of self-contained living accommodation. Accordingly the legislation at issue in that appeal was similar to that at issue in this appeal. However, the facts were very different.After conversion the barn was laid out partly as a playroom and partly as living space with table and chairs. There was also a first gallery with desk, chairs and sofa and an upper gallery with chairs a table and a sofa bed. Underneath the gallery was a room with gym equipment. Attached to the whole of one wall of the barn was a single lean to extension containing a lobby, a kitchenette and a bathroom. The Tribunal concluded that the barn was physically capable of being used as self-contained living accommodation.
35. However, the facts in that decision can be distinguished from the facts in this appeal. The barn had no communal areas and it also had its own kitchenette and bathroom.
36. In Oldrings Development Kingsclere (April 2002) the legislation was very similar to that in this appeal and the issue was whether the construction of a studio room in the grounds of a private dwelling could be zero-rated under Item 2(a) of Group 5 having regard to the provisions of Note (2). The building was a separate building in the seven acre grounds of the main house. It was designed so that it could be used as a granny or teenager's studio. It consisted of a large room and a small room containing a water closet and a hand basin; space was left for a shower to be installed. In the large room was a kitchen sink in a base unit, a worktop and five electrical points. The unit was connected to water and drainage and had its own electric radiators and its own hot water system. It had a separately monitored electricity supply. It fronted a public highway from which it had direct access. The Tribunal held that it was capable of being used as a domestic dwelling independent of the main house and therefore was self-contained living accommodation.
37. Again, the facts in that decision can be distinguished from the facts in the present appeal. In this appeal the residential units have no kitchen sink or worktop and do not have their own central heating system, hot water system, or a separately monitored electricity supply.
38. In University of Kent (2004) the issues were whether sleep units were residential caravans or, alternatively, whether the supply of such units constituted the letting of immovable property. In deciding whether the caravans were residential the Tribunal applied the "self-contained living accommodation" test. It remarked that the caravans were not designed to facilitate cooking and eating, even if a microwave cooker, a kettle or a toaster could have been introduced. There were no proper facilities for washing and drying crockery, cutlery and cooking utensils. The units were not designed for the purpose of constituting self-contained living accommodation and so were not residential caravans.
39. In considering in this appeal whether the residential units were self-contained living accommodation we have considered a number of factors. First, the planning permission. This indicates that the units were designed to provide care accommodation. That is not conclusive in this appeal because care accommodation can be self-contained. Paragraph 8 of the conditions refers to the proposal containing a flat and/or dwelling; we have already found that the units constituted dwellings and condition 8 does not assist in deciding the further question of whether they consisted of self-contained living accommodation. We therefore consider that the planning consent cannot be decisive.
40. Next, we consider what the units were designed as. Mr Stebbing described his brief as "to provide permanent accommodation", "to lifetime standards" and "allowing for flexible independent living for the residents". Further, there is direct access to Schonfield Square. There is also the facility to have a microwave cooker, a refrigerator and a kettle. In our view, in the twenty-first century, premises with their own front door, en suite bathing facilities and the ability to cook with a microwave cooker and a kettle are self-contained living accommodation. The factor of the limited nature of the cooking facilities is outweighed by the factor of the direct access to the Square from a resident's own front door to which he or she has his or her own key.
41. For these reasons we conclude that the units were designed as dwellings consisting of self-contained living accommodation.
42. We now very shortly explain why we do not find the other authority and Tribunal decisions relevant in this appeal.
43. In St Catherine's College (1980) the issue was whether a college had a protected tenancy of a furnished house occupied by five undergraduates each with the exclusive use of one study bedroom and a share of a kitchen and bathroom. The legislation provided that a tenancy under which a dwelling house (which could be a house or part of a house) was let as a separate dwelling was a protected tenancy. The Court of Appeal held on the facts that the house had not been let as a separate dwelling and the college was not a protected tenant. As the facts and law in that authority are so very different from the facts and law in this appeal we have not found it helpful in reaching our decision.
44. In University of Bath (1996) the issue was whether the grant of leases was a zero-rated or an exempt supply and that in turn depended upon whether buildings were designed as a dwelling or number of dwellings. The relevant legislation was item 1(a) of Group 5 of Schedule 8 as it existed before March 1995. In that legislation there appeared to be no equivalent of the present Note (2)(a). The buildings contained student rooms equipped as a bedroom and study with a shower, washbasin and WC . There was a shared kitchen and shared bathrooms. Each student had a key which opened his own door, the front door and the kitchen door. Having regard to legislation which is not in issue in this appeal the Tribunal held that the units were not dwellings We have not found that decision helpful because it concerned legislation which is not in issue in this appeal and because we have already reached the conclusion that the residential units in this appeal were dwellings relying on Uratemp which was a later judgment of the House of Lords.
45. In Look Ahead Housing Association (April 2000) the relevant legislation was Item 3 to Group 5 which zero-rates certain supplies in the course of the conversion of a non-residential building into a building designed as a dwelling and Note (2) was relevant in that appeal. Before the conversion the building contained two self-contained flats and some bed sitting rooms and after the conversion it contained only self-contained flats. The issue was whether the bed sitting rooms before the conversion were non-residential. That legislation is not relevant in the present appeal.
46. Amicus Group (May 2002) also concerned Item 3 of Group 5 and the issue was whether two buildings before conversion which consisted of bedsitting rooms were non-residential. The facts were very similar to those in Look Ahead but the Tribunal came to a different decision bearing in mind the need to construe exempting provisions narrowly and the policy of the legislation and held that the bedsitting rooms were dwellings. Again, the issue in Amicus Group is not the same as the issue in this appeal. We have already decided that the new units are dwellings and the decision does not help us in deciding whether they consisted of self-contained living accommodation. .
47. Finally, in Kingscastle (June 2002) the relevant legislation was section 35 of the 1994 Act which incorporated the notes to Group 5. The issue was whether the conversion of a public house was from a non-residential building and that in turn depended upon Note (7) which stated that non-residential meant neither designed nor adapted for use as a dwelling. The Tribunal followed Uratemp and held that before conversion the public house was a dwelling because that was where the publican lived and treated the accommodation as a home; there was shower and toilet accommodation nearby and the use of a kitchen on the ground floor. Again, we have already decided that the new units are dwellings and the decision does not help us in deciding whether they consisted of self-contained living accommodation.

Decision

48. Our decision on the issue for determination in the appeal is that each residential unit was designed as a dwelling consisting of self-contained living accommodation. However, we are also of the view that the communal areas on the third floor did not consist of self-contained living accommodation..
49. Our decision means that the appeal is allowed.

DR NUALA BRICE

CHAIRMAN

RELEASE DATE: 15 October 2004

LON/2003/0344

50. 10.04