Construction of a garage zero-rated?

An Appeal was heard by the First Tier-Tax tribunal regarding the VAT liability of the construction of a workshop, garage and store (collectively referred to as “Workshop”) undertaken by TGH (Commercial) Limited (the Appellant), a trading subsidiary wholly owned by The Great Hospital (TGH) who themselves are a charity. TGH provide residential accommodation to the elderly and entered into a contract with the Appellant in relation to the construction of 2 buildings that would act as self-contained flats for elderly resident’s aswell as a car park, a community hall and the workshop.  It was earlier agreed that the buildings housing the dwellings would fall within the definition of “relevant residential purpose” from a VAT perspective (similarly to care homes and similar institutions).

The workshop was to be used by maintenance staff engaged in maintaining the residential accommodation on-site and so it was initially supposed by the Appellant that the construction of the workshop would be zero-rated due to it being used concurrently with the “relevant residential” accommodation.  However, HMRC considered that this building would not “solely” be used for a “relevant residential purpose”, with the result that zero-rating could not apply.

In order for the tribunal to establish the correct position, a number of factors had to be considered, including whether the buildings were intended to be used together as a unit, whether the buildings were constructed at the same time and also if they were to be used “as a unit solely” for a relevant residential purpose.  The Appellant contended that as the workshop was to be used by maintenance workers (and as access was restricted to these few employees) for the upkeep of the residential accommodation these tests were met. Although the workshops was not constructed at the same time as each building providing residential accommodation that the staff helped maintain, it was done so concurrently with one of the residential buildings and so satisfied the qualifying criteria.

The Tribunal agreed with the view expressed by TGH and therefore concluded that the works associated with the construction of the workshop were liable to the zero-rate of VAT.

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