The Pennine Care NHS trust provides services to people with mental health issues and, in 2009, began the construction of a new, low security, mental health unit.

The cost was approximately £10 million and it aimed to provide services to up to 45 adult men at a time for a period of around 2 years.

The Appellant believed that the construction services incurred in the construction of this new unit were liable to the zero-rate of UK VAT due to the building qualifying as number of dwellings, the construction of which is zero-rated.

HMRC believed that the services incurred in the course of constructing a residential mental health unit related to a building where the proposed use was that of a hospital or similar institution and were chargeable to UK VAT at the standard rate of 20%.

The Appellant contended HMRC's view and the case was heard by the First-Tier Tribunal. For these purposes, the tribunal defined a hospital as a building used for treatment of a medical condition as opposed to personal care; the former is likely to require short term occupation, the latter long-term residence.

The main issue taken into consideration was whether the care provided qualified was similar to that provided by a hospital or similar institution.

In general, patients of the unit are diagnosed prior to their stay and although all residents will suffer from mental health issues, none of them will be in the acute stages of an illness during their residency. Each of the residents of the new unit will have their room personalised and be involved in social activities such as visiting the theatre indicating that the primary function of the unit was to provide care for the residents as opposed to providing treatment.

The First Tier Tribunal stated that the therapies and assessments undertaken by the staff at the Unit were entirely separate from the diagnosis of the patient and that the main aim of the activities undertaken was not to treat the, sometimes incurable, illness but to provide skills to help the resident manage the illness as opposed to cure it.

Due to these facts, the appeal was upheld and zero-rating was allowed in relation the construction services provided in relation to the new unit.

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