Cantrell (t/a Foxearth Lodge) v Commissioners of Customs & Excise

For VAT purposes, an annexe is not established merely because a new building is associated with an existing building. It is a supplementary structure, such as a room, wing or separate building, which is an adjunct or accessory to the existing building. The inquiry is objective and principally concerns the physical character of the buildings, although the nature of an annexe may require a wider inquiry than an enlargement or extension. Common ownership, contiguity and inclusion in one building complex are not, without more, sufficient. Where the physical features and, if relevant, the wider context show no relationship of adjunct or accessory, the works are not excluded from zero-rating as the construction of an annexe.

Mr and Mrs Cantrell appealed from a decision of the VAT and Duties Tribunal dated 9 September 2002. The Tribunal had held that works undertaken in two phases to construct a new elderly severely mentally infirm unit constituted the construction of an annexe to an existing building, and therefore were standard-rated under Note 16(c) to Group 5 of Schedule 8 to the Value Added Tax Act 1994. The appellants contended that the Tribunal had misdirected itself by treating association with the existing building as sufficient and by failing to apply the objective physical-character approach identified on an earlier appeal. The central issue was whether the works constituted an annexe to an existing building.

1. Appeal allowed. The works in Phases I and II did not constitute the construction of an annexe to any existing building. They were therefore zero-rated, and the assessment was discharged.

2. Note 16(c) to Group 5 of Schedule 8 to the Value Added Tax Act 1994 introduces a concept different from the enlargement of, or extension to, an existing building. Note 17 shows that a building may be an annexe even though it can function independently and has separate or different access. Physical separation is therefore not decisive.

3. An annexe is an adjunct or accessory to something else. In the building context it means a supplementary structure, whether a room, wing or separate building. The Tribunal erred in treating any association as sufficient. That approach could make each of two sufficiently associated buildings an annexe of the other, contrary to the ordinary meaning of the word.

4. The objective physical-character approach identified by Lightman J remains relevant to enlargement and extension. The question whether an alleged annexe must be assessed by a wider inquiry was left open because it was unnecessary to decide it.

5. On the Tribunal’s findings, the new unit was self-contained, had separate facilities and utility supplies, performed a different function, and had minimal integration with the New Barn. Neither contiguity, common ownership nor inclusion in the wider complex showed that it was an adjunct or accessory. Even if it were legitimate to look beyond purely physical characteristics, the regulatory separation of the two units reinforced that conclusion.

6. The court exercised its jurisdiction under Civil Procedure Rules 1998, rules 52.10(1) and 52.1(3)(c), to exercise the Tribunal’s powers and make the declaration itself.

• VAT and Duties Tribunal: the first appeal was dismissed; on rehearing, the Tribunal held that the Phase I and Phase II works constituted an annexe to an existing building.
• High Court (Chancery Division): Lightman J allowed an earlier appeal and remitted the matter for rehearing after finding material factual and legal errors. On the further appeal, the Vice-Chancellor allowed the appeal, declared that the works were not an annexe and discharged the assessment.