The VAT status of the construction of a swimming pool was put to the test in the recent McCann case at the First Tier Tribunal.
In the case of Terry McCann v Revenue & Customs TC 03017  UKFTT 632 (TC), the taxpayer appealed the VAT charge relating to the construction of a house with an adjoining swimming pool set into a terrace overlooking the sea. The new pool was linked to the house by a service void. McCann argued that the construction should be zero-rated for VAT purposes. However, the Tribunal ruled that only part of the construction should be zero-rated.
The case centred on the physical location of the pool and its connection to the property as well as a number of shared services.
At first, the builders accounted for VAT on the whole construction believing that it was wholly excluded from zero-rating. They asked HMRC for a repayment and HMRC responded that the construction of the house could be zero-rated but not the outside pool (including changing rooms and a plant room).
Stephen Relf, tax specialist at CCH said: ‘The construction of a swimming pool contained entirely within a house is zero-rated. The construction of a swimming pool which is separate from a house is not. In this instance, the swimming pool was set into a terrace which covered part of the lower floor of the building.
‘The taxpayer and HMRC got bogged down in a debate as to whether the service void, which formed part of the structure of the pool, was part of the house. This was of little interest to the Tribunal. The swimming pool was part of the same structure as the house but it was not contained within the house and so zero-rating could not apply.’
HMRC Notice 708 states that, in order to be zero-rated, work must be ‘closely connected’ to the construction of the building. It goes on to say that work is closely connected if it allows the construction to take place or produces ‘works that allow the building to be used’. An article is ‘incorporated’ in a building if its removal would require the use of tools or result in a need for remedial work to the building.
It was common ground that where a swimming pool is contained within a house, constructing it is part of the building of the house and so the services and materials supplied for that purpose are zero-rated. The taxpayer argued that the swimming pool was part of the house but HMRC disagreed, stating that the swimming pool was separate from the building.
However, the Tribunal agreed with the taxpayer, finding that the swimming pool was incorporated into the building and that the service void was part of the house. However, this was not the key to the correct application of the rules.
The Tribunal said: ‘We have concluded that the swimming pool and pool house are not eligible for zero-rating, save possibly to a minor extent on account of the heat pump.’ The swimming pool was part of the same structure as the house but it was not contained with the house. Therefore, the services and materials supplied in its construction were not eligible for zero-rating. As the plant room contained a heat pump which contributed to heating the house that part was eligible for zero-rating.