HM Revenue & Customs v Fenwood Developments Ltd

For zero-rating under Group 5 of Schedule 8 to the VAT Act 1994, the intended use of a building must be assessed in its statutory context. A home providing residential accommodation and personal care for persons with mental disorder is excluded only if its intended use is as a hospital or similar institution. That requires an institution providing medical treatment and associated care, usually on a short-term basis, rather than a residence principally providing personal care. A prison or similar institution must have a penal element. Later actual use may be evidence of intended use, but the taxing authority must apply the correct statutory test and justify its assessment.

HM Revenue & Customs appealed under section 11 of the Tribunals and Enquiries Act 1992 from a decision of the VAT and Duties Tribunal allowing Fenwood Developments Ltd’s appeal and discharging a VAT assessment.

Fenwood had constructed a mental nursing home intended to provide long-term residential accommodation and personal care for women with mental disorders. The Tribunal held that the building was neither a hospital nor a prison, or similar institution, for the purposes of Group 5 of Schedule 8 to the VAT Act 1994. It also held that the assessment had not been made to the Commissioners’ best judgment because it addressed actual use rather than intended use. The central issues were the meaning of the statutory exclusions and whether the assessment was lawfully made.

1. The appeal was dismissed. The Tribunal had correctly allowed Fenwood’s appeal and discharged the assessment.

2. The Chancellor held that the meaning of “hospital” could not be determined by importing statutory definitions from other legislation. The relevant context was Group 5 of Schedule 8 to the VAT Act 1994, which concerns buildings intended solely for a relevant residential purpose. The statutory contrast was between residential accommodation with personal care and an institution providing medical treatment and associated care, usually on a short-term basis.

3. The Dene was intended to provide a home and personal care for residents who no longer needed, or could no longer benefit from, hospital treatment. It did not accept residents in an acute phase of illness and transferred residents requiring acute intervention to hospital. The Tribunal was entitled to find that its intended use was not as a hospital or similar institution. Registration as a mental nursing home under section 22 of the Registered Homes Act 1984 did not determine the construction or application of Note (4) to Group 5.

4. A “prison or similar institution” must have a penal element. The fact that some residents had previously been convicted of offences, or might have been detained under the Mental Health Act 1983, was insufficient. The intended regime was neither punitive nor rehabilitative in a penal sense, and residents were admitted because they needed accommodation and personal care.

5. The observations on best judgment were academic because the assessment was already bad in law. Nevertheless, the correct question was intended use at the time of supply. Actual use shortly afterwards could be prima facie evidence of intended use where there was no evidence of a change of plan. The Commissioners’ assessment had relied on the wrong test and therefore could independently have been set aside.

• High Court (Chancery Division): The Chancellor dismissed the Commissioners’ appeal from the VAT and Duties Tribunal and upheld the discharge of the assessment.