Can village hall extensions be VAT zero rated
Village Hall VAT Questions
Can work extending or building a village hall be obtained VAT zero rated ? This is a question I have been asked a number of times recently. I do rather enjoy advising village halls as you get to travel to some rather lovely part of the country. The VAT issues are also rather interesting.
The recent case concerning the Litten and Thorners Village hall is a good introduction. It explores both the VAT rules relating to new village halls and also when certain types of ‘extension’ can be free of VAT.
The VAT rules that cover village halls allow work to be zero rated building either an entirely new village hall or an annex that can be used independently. There have been a number of cases of what exactly constitutes a village hall. These have considered whether various sports pavilions and the like are sufficiently community facilities to qualify.
A New Village Hall
The village hall in question with the Litten Tribunal was constructed in 2009. It was used both by the village for social activities and by the local primary school for indoor gym education. It was realised that such a diverse group of users meant it need to have a lot of storage space. This problem was only really addressed whilst the building was being constructed. Then it was decided an additional store to the east of the structure was needed. The new building was adapted as it was built to facilitate this store by the inclusion of a supporting girder but the store was not built at the same time. The Charity needed to apply for a revised planning permission and also raise the necessary funds.
The planning permission was not obtained until 2011, two and half years after the building had been opened. Fundraising took even longer and the additional building was not completed till 2014. The Charity obtained zero rating on the building work but HMRC challenged the builders right to not charge VAT. As far as HMRC were concerned it was an extension to a building and standard rated for VAT.
The Charity appealed to the VAT Tribunal. It successfully argued two points.
First it argued that the new store was not a standard rated extension but a zero rated annex. To be regarded as an annex the building had to be regarded as capable of functioning separately from the main building. Double doors that allowed the store to be accessed from the outside were accompanied by a door allowing access to the hall. In terms of its use the the activities that took place in the main hall could never take place in the store.
To be an annex the main access to the store could not be through the existing building. The Court found that both the external double and internal door would be used. Neither could be said to be the main access and so this test was met. The building was an independent storage facility that was capable of functioning independently from the main building. The fact that it might not do so didn’t matter – the test was concerned with whether it was capable of functioning separately and not whether it would.
The Charity therefore succeeded with its argument that the new store was an annex. This meant the work building it could be zero rated.
It also succeeded with its second argument, that the work building the store merely completed the original hall and was covered by the original zero rating. The time delay of over 4 years did not matter, the store completed the originally planned building.
Risk of Appealing
Although the Charity won its case the questions the Court was deciding are rather subjective and a differently comprised Court could have come to a different conclusion. But it shows that it is sometime possible to win arguments that at first glance appear unlikely to succeed.
I presume that HMRC are rather unhappy, but the Court was careful to state the facts that its judgment depended upon and I suspect an HMRC appeal is unlikely. The case can be read here