Immanuel Church case on VAT treatment of annexes

Immanuel Church v HMRC [(2019] UKFTT 601) was a fairly routine charitable annexe case. The Church in Southbourne, Bournemouth, raised funding for an annexe/extension. In part this was to provide a secure facility for dementia sufferers and their carers. The local demographic means this is a significant issue. The project Architect sought a ruling from HMRC before construction started. HMRC insisted the work did not constitute a zero-rated annexe for VAT purposes.

Another issue arose. The Church was taking the opportunity to improve a separate part of its building which was unquestionably standard-rated. HMRC insisted that the project be treated as a single supply such that zero-rating could not be allowed unless the entire project qualified as a charitable annexe. This issue was raised in the case of Yeshivas Lubavitch Manchester (see para 20 of that decision) [a CTG commentary on this case can also be found here]. I am concerned that this appears to be a growing trend.

Correspondence continued over many months. Eventually HMRC offered an Alternative Dispute Resolution (ADR), which the Church Minister was keen on. Helpfully, HMRC attended the building during the period of construction. But they did not change their mind.

And so to Tribunal. I was able to bring in the Architect (and Project Manager) as a witness. He was excellent on describing the factual details of the project. I take the view that this was essential in the circumstances. The Church Minister also gave evidence, to provide a wider context in which the works were being carried out. The Tribunal commented that both were reliable witnesses.

HMRC in correspondence and in their guidance (Notice 708, para 3.2.7) suggest that an annexe should provide space for activities which are distinct from but associated with those activities being carried on in the existing building. Court and Tribunal decisions (most recently in St Brendan’s) have disapproved of this approach. I had to address this issue whilst emphasising the physical characteristics on the annexe/extension.

The only issue was whether the new structure was an annexe. HMRC had already conceded that, if the Tribunal were to find for the Church on that issue, the Note 17 tests were accepted.  The Tribunal found in the taxpayer’s favour.

Les Howard is a VAT Consultant for and took this case to the Tribunal


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