‘What is a new building?’ sounds like an incredibly easy question to answer but it has had everyone jumping through hoops for decades. Here we see another decision in the tribunal adressing this old chestnut. Proving yet again that when dealing with VAT and property you should never assume anything. The rules are complex and packed full of tripwires as discovered by St Brendan’s Sixth Form College (TC06384).
The College contracted for the construction of what it regarded as a new block, which it claimed was zero-rated. HMRC disagreed focusing on a link from the new block by way of a bridge, which HMRC claimed meant the new block was not a separate building and therefore VAT was due on the build cost.
On the basis of such VAT being a real cost to the College having VAT charged on the construction work was a real problem.
The only issue between the parties on this point is whether or not the existence of the link bridge made the new building into an extension, enlargement or annexe. While the parties agreed that the new block was not an enlargement or an extension, the question whether it was an annexe was more difficult. Fortunately for the college the tribunal disagreed with HMRC. It decided that an annexe is usually a building that is “physically connected to an existing building, and performs a specific subsidiary function to the main building”. On balance the existence of the link bridge did not prevent the new block from being a separate building. Further, if that analysis was wrong, then the new building should be treated as a qualifying annexe.
So while the College dodged a bullet on this one, that should not mean anyone else is complacent when approaching the question of how VAT applies to construction projects.
The plethora of cases testing this point of what is a new building are often conflicting. Anyone involved in a project where there is any possible question surrounding separate or linked building rules should tread very carefully. Please give us a call before pressing the green button – why risk getting it wrong?