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Upper Tribunal HMRC v Astral Construction Ltd [2015] UKUT 0021 (TCC) The Upper Tribunal has released its judgment in the above case. This was an appeal by HMRC against the decision of the First-tier Tribunal (FTT). The issue to be determined was whether the construction of a nursing home on the site of and incorporating a redundant church was the construction of a building intended for use for a relevant residential purpose (and thus zero- rated) or, as contended by HMRC, the works were the enlargement of, or extension to the existing church. The taxpayer supplied construction services to the operator of a nursing home. The development incorporated an existing but redundant church. The work involved the construction of two substantial new wings with the church being used as the main entrance and reception. The FTT concluded that when compared to what previously existed, the new building dwarfed the old church and that, looking objectively at the physical characteristics of the building(s) before and after the works had been completed, the only conclusion that could be drawn was that the works were correctly to be classed as the construction of a new building rather than the extension or enlargement of the old church. HMRC appealed. The Upper Tribunal could only allow HMRC's appeal if the FTT had made an error of law or made a finding of fact which was not supported by the evidence. HMRC's primary argument was that the FTT had applied the wrong test but, the Upper Tribunal concluded that it had not. The phrase "construction of a building" contained in the VAT law is wide enough to include the construction of a new building or buildings connected to and incorporating the old church. In addition, whether the works were an enlargement or an extension to the old church is a question of fact, degree and impression. The structure which existed after the works was a single fully functional nursing home. As a matter of impression, size, shape, function and character, it was vastly different from the existing church that it could not be said to constitute either the conversion, enlargement of or extension to the church. These findings of fact by the FTT were, therefore, wholly reasonable. Accordingly, HMRC's appeal was dismissed. Comment – This is a useful judgment for developers of sites where existing buildings are wholly or partly incorporated into the works. In most cases, the works will be of a fairly minimal scale and will be regarded as extensions or enlargements to the existing buildings or structure. However, as this case demonstrates, where the scale of the works are such that the existing building is only a very small part of the overall larger project, it may be possible to argue that what has been created is a new building and not an extension or enlargement of the old building. This may be useful in cases where houses and other relevant residential or relevant charitable buildings are to be or have been constructed incorporating the whole or part of an existing building. For further information in relation to any of the issues highlighted in this Case Alert please contact: Stuart Brodie [email protected] Karen Robb [email protected] Richard Gilroy [email protected] Andrea Sofield [email protected] © 2015 Grant Thornton UK LLP All rights reserved ‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. www.grant-thornton.co.uk Case Alert

Case Alert - Astral Construction Ltd

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Upper Tribunal

HMRC v Astral Construction Ltd [2015] UKUT 0021 (TCC)

The Upper Tribunal has released its judgment in the above case. This was an appeal by HMRC against the decision of the First-tier Tribunal (FTT). The issue to be determined was whether the construction of a nursing home on the site of and incorporating a redundant church was the construction of a building intended for use for a relevant residential purpose (and thus zero-rated) or, as contended by HMRC, the works were the enlargement of, or extension to the existing church.

The taxpayer supplied construction services to the operator of a nursing home. The development incorporated an existing but redundant church. The work involved the construction of two substantial new wings with the church being used as the main entrance and reception. The FTT concluded that when compared to what previously existed, the new building dwarfed the old church and that, looking objectively at the physical characteristics of the building(s) before and after the works had been completed, the only conclusion that could be drawn was that the works were correctly to be classed as the construction of a new building rather than the extension or enlargement of the old church. HMRC appealed.

The Upper Tribunal could only allow HMRC's appeal if the FTT had made an error of law or made a finding of fact which was not supported by the evidence. HMRC's primary argument was that the FTT had applied the wrong test but, the Upper Tribunal concluded that it had not. The phrase "construction of a building" contained in the VAT law is wide enough to include the construction of a new building or buildings connected to and incorporating the old church. In addition, whether the works were an enlargement or an extension to the old church is a question of fact, degree and impression. The structure which existed after the works was a single fully functional nursing home. As a matter of impression, size, shape, function and character, it was vastly different from the existing church that it could not be said to constitute either the conversion, enlargement of or extension to the church. These findings of fact by the FTT were, therefore, wholly reasonable. Accordingly, HMRC's appeal was dismissed.

Comment – This is a useful judgment for developers of sites where existing buildings are wholly or partly incorporated into the works. In most cases, the works will be of a fairly minimal scale and will be regarded as extensions or enlargements to the existing buildings or structure. However, as this case demonstrates, where the scale of the works are such that the existing building is only a very small part of the overall larger project, it may be possible to argue that what has been created is a new building and not an extension or enlargement of the old building. This may be useful in cases where houses and other relevant residential or relevant charitable buildings are to be or have been constructed incorporating the whole or part of an existing building.

For further information in relation to any of the issues highlighted in this Case Alert please contact:

Stuart Brodie [email protected]

Karen Robb [email protected]

Richard Gilroy [email protected]

Andrea Sofield [email protected]

© 2015 Grant Thornton UK LLP All rights reserved ‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

www.grant-thornton.co.uk

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