Her Majesty's Commissioners of Customs and Excise (Appellants) v. Zielinski Baker & Partners Limited (Respondents)

For services supplied during an approved alteration to qualify for zero-rating under item 2 of Group 6 of Schedule 8 to the Value Added Tax Act 1994, the actual building altered must satisfy each element of the definition of a protected building. It must be a building designed to remain as or become a dwelling, or for another specified residential or charitable use, and it must be a listed building or scheduled monument.

A statutory rule treating a curtilage structure as part of a listed building for planning control does not make alterations to that structure alterations to the principal dwelling. The natural statutory language governs even where this creates anomalies between work undertaken in a house and comparable work undertaken in a nearby outbuilding.

The respondent supplied services connected with the conversion of an outbuilding into changing and games facilities and the construction of an adjoining indoor swimming pool. The outbuilding stood within the curtilage of a listed dwelling and was treated as part of it for listed-building control under section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990.

The VAT and Duties Tribunal held that part of the work qualified for zero-rating. Etherton J reversed that decision: [2001] STC 585. A majority of the Court of Appeal restored the Tribunal's decision: [2002] EWCA Civ 692; [2002] STC 829.

The central issue was whether the work was an approved alteration of the listed house or an alteration of the physically separate outbuilding, which was not designed to remain as or become a dwelling.

1. Appeal allowed by a majority of four to one. Lord Walker delivered the principal speech. Lord Hoffmann, Lord Hope and Lord Brown agreed that the services were not zero-rated. The order of Etherton J was restored, with costs in the Court of Appeal and the House of Lords.

2. Per Lord Walker, the definition of a protected building in note (1) to Group 6 of Schedule 8 to the Value Added Tax Act 1994 contains cumulative requirements. The subject of the approved alteration must first be identified as a building. That building must be designed to remain as or become a dwelling, or satisfy one of the other specified use requirements, and must also be a listed building or scheduled monument.

3. The actual building altered was the outbuilding. It was designed as a games room, changing room and swimming-pool facility, not as a dwelling. It therefore failed the residential-use requirement. This was sufficient to defeat the claim even if section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990 made it part of the listed building for the listed-building limb of the definition.

4. Per Lord Hoffmann and Lord Hope, the statutory reference to a listed building did not cause the artificial planning-law definition to alter the ordinary meaning of “building” in the separate residential-use limb. Listing was one prerequisite among several. The definition did not make every structure subject to listed-building control a protected building for VAT purposes.

5. Per Lord Walker, construing the provisions as a whole did not permit the clear and natural language to be displaced. The legislative history reinforced the conclusion because the zero-rating provisions had been narrowed towards housing and related social objectives. Apparent anomalies between work within a listed house and comparable work in a detached outbuilding were insufficient to extend a tax exemption beyond its natural meaning. Note (10), although difficult to explain, could not justify a contrary construction.

6. Lord Nicholls dissented. He considered the literal result irrational and inconsistent with the purpose of alleviating the burden on owners of listed buildings. In his view, “a building” could include “buildings”, permitting self-contained living accommodation to extend across structures where each fell within the statutory listed-building definition.

1. House of Lords: The Commissioners' appeal was allowed by a majority of four to one: [2004] UKHL 7. Etherton J's order was restored.

2. Court of Appeal: By a majority, Tuckey and Rix LJJ, with Aldous LJ dissenting, the court allowed the taxpayer's appeal: [2002] EWCA Civ 692; [2002] STC 829.

3. High Court: Etherton J allowed the Commissioners' appeal from the Tribunal: [2001] STC 585.

4. VAT and Duties Tribunal: The Tribunal decided in favour of the taxpayer.