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‘Annexe’ or ‘Extension’? For VAT Purposes the Distinction Matters

In a decision which casts light on the difficult, but frequently important, distinction between ‘annexes’ and ‘extensions’ for tax purposes, a further education college has failed to win a VAT exemption in respect of materials used in the construction of its new art and design block.

universityThe college argued that the new block, although built in close proximity to the existing main building, should be viewed as an annexe and that the supply of materials should thus be zero-rated under the Value Added Tax Act 1994. However, Her Majesty’s Revenue and Customs (HMRC) insisted that they did not qualify for the relevant exemption as the block was an extension to the existing building.

Although the new block was attached to the main building by a covered walk-way and the two buildings were visually similar, the First-Tier Tribunal accepted that it was to be used for a particular purpose, distinct from that of the main building, and that its appearance, design and construction gave the impression of an annexe, rather than merely a physical enlargement of the existing building.

However, in dismissing the college’s appeal, the Tribunal noted that the art and design faculty’s administration – without which it could not function – was based in the main building. The decisive factor in favour of HMRC was that both the main building and the new block shared a central heating system and, on that basis, the new block ‘was not capable of being operated independently’.