Her Majesty's Commissioners of Customs and Excise v Zielinski Baker & Partners Limited

The House of Lords determined the proper construction of "protected building" in item 2 of Group 6, Schedule 8 to the Value Added Tax Act 1994. The court held that the definition is cumulative: the subject of the approved alteration must be (i) a building, (ii) designed to remain as or become a dwelling (note (2)), and (iii) a listed building or scheduled monument within the meaning of the relevant legislation (note (1)). Section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990 extends the meaning of "listed building" for planning purposes but does not rewrite the ordinary meaning of "a building" in the VAT provisions so as to treat an outbuilding that is not itself designed to be or become a dwelling as a protected building. Consequently, alterations to an outbuilding within the curtilage of a listed dwelling did not satisfy the dwelling requirement and were not zero-rated.

This case concerned a claim that work converting an outbuilding and constructing an adjoining indoor swimming pool should attract zero-rating under Group 6, Schedule 8 to the Value Added Tax Act 1994 as "approved alteration of a protected building." The outbuilding lay within the curtilage of a listed dwelling and had been treated as part of the listed building for planning-control purposes under section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990. The taxpayers (planning consultants acting for the owners) relied on the curtilage extension to say the outbuilding was a listed building for VAT purposes and that the works should therefore be zero-rated.

Procedural history: the VAT and Duties Tribunal decided for the taxpayers; Etherton J in the High Court allowed the commissioners' appeal; the Court of Appeal by majority reversed Etherton J and allowed the taxpayers' appeal ([2002] EWCA Civ 692); the commissioners appealed to the House of Lords.

Nature of the claim: declaration/appeal about the VAT treatment of building works—whether the services supplied in connection with the conversion of the outbuilding were zero-rated under Group 6.

Issues framed:

• Whether the expression "protected building" in Schedule 8 Group 6 includes an outbuilding within the curtilage of a listed dwelling that is not itself designed to remain as or become a dwelling;
• Whether the tailpiece to section 1(5) of the 1990 Act (treating curtilage structures as part of a listed building) should be imported wholesale into the VAT definition so as to satisfy the requirement that the building be "designed to remain as or become a dwelling";
• What role contextual and purposive considerations (including the European law background and the social policy underlying the zero-rate) play in construction of the VAT provision.

Court’s reasoning: the majority favoured a straightforward, literal and cumulative reading of the definition in note (1): the alteration must be to "a building" which itself meets the dwelling requirement in note (2) and also be a listed building or scheduled monument. The 1990 Act's extension of "listed building" to include curtilage structures is a statutory fiction for planning control and does not replace the ordinary meaning of "a building" in the VAT code. The social purpose of Group 6 (targeted relief for residential/social objectives) and the character of zero-rating as an exemption support not extending relief beyond the clear statutory language. Lord Nicholls dissented, favouring a purposive construction treating the textual reference to "a building" as accommodating multiple structures where appropriate.

Appeal allowed. The House of Lords held by a majority that the definition of "protected building" in Group 6 Schedule 8 VATA 1994 is cumulative and requires that the building which is the subject of the approved alteration must itself be designed to remain as or become a dwelling; an outbuilding within the curtilage that is not itself so designed does not qualify and the supplies are not zero-rated. The 1990 Act's section 1(5) fiction does not alter the ordinary meaning of "a building" for the VAT provision.

VAT & Duties Tribunal (decision for taxpayers, 4 July 2000); High Court (Etherton J) allowed the commissioners' appeal ([2001] STC 585); Court of Appeal allowed the taxpayers' appeal by majority ([2002] EWCA Civ 692); House of Lords allowed the commissioners' appeal ([2004] UKHL 7).