The Appellant in this case is a college who constructed a new art and design building. The new building was connected to an existing building by an enclosed footbridge on the first floor level and by an open pathway underneath the footbridge on the ground floor level. The new building had its own restrooms and water supply, but received its heating supply from the existing building via connecting pipes.
Item 2, Group 3 Schedule 8 of the VAT Act 1994 allows zero rating for the construction of a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose.
However, for this purpose the construction of a building does not include an enlargement or extension to an existing building except to the extent that it creates an additional dwelling.
The construction of a building also does not include the construction of an annex to an existing building unless it is intended, in whole or in part, to be used solely for a relevant charitable purpose. In addition, the annex must be capable of functioning independently from the existing building. Also, the main access to the annex, when there is more than one means of entry, must not be via the existing building nor can the main access to the existing building be via the annex.
It was not in dispute that the new building was intended to be used solely for a charitable purpose and that the access conditions were satisfied. However, HMRC considered the new building to be an extension of the existing building and thus not eligible for zero rating. The Appellant considered it to be an annex that was capable of functioning independently from the existing building which overrode the exclusion from zero rating.
The First Tier Tribunal (FTT) determined that the new building did not constitute an extension or enlargement of the existing building. However, it also noted that while the new building functioned independently in many respects, it was reliant on the existing building for heat which meant that it was not capable of functioning independently. Therefore, this condition was not satisfied and the FTT dismissed the Appellant’s appeal.