‘Annex’ or ‘Extension’? Village Hall Trustees Triumph in Tax Dispute

The distinction between an ‘annex’ and an ‘extension’ to a building may appear only slight. However, in a case of interest to charities and tax professionals it proved decisive to the tax treatment of an addition made to a village community hall.

The hall had been constructed using funds raised by villagers and the local church authorities and was operated by a charitable trust. After it was realised that the hall did not have sufficient storage space, a smaller building was added. The latter was completed about five years after the hall was opened.

In the belief that the project was zero-rated for VAT purposes, the building firm that constructed the additional building did not charge VAT on the work. HM Revenue and Customs, however, took a different view and demanded £5,956 in VAT from the trust. That was on the basis that the additional building was an ‘extension’ to the hall, within the meaning of Section 30 of the VAT Act 1994.

In upholding the trust’s appeal against that decision, the First-tier Tribunal (FTT) found that the additional building was an ‘annex’ to the original hall. It was intended solely for a charitable purpose and no VAT was therefore payable.

The FTT acknowledged that the distinction between an annex and an extension is a fine one, but noted that the additional building was simply a windowless room that had the appearance of a lean-to and was built of the same materials and in the same style as the hall. It was accessible both externally and from inside the hall, but neither entrance could be viewed as predominant. In the final analysis, it neither looked nor felt like an extension.