In Glasgow School of Art v HMRC [2019] UKUT 0173 the Upper Tribunal held that construction of a new building and rebuilding of another were effectively treated at one building and a single supply for VAT.

  • Between about 2011 and 2014, Glasgow School of Art (GSA) carried out a redevelopment project consisting of the demolition of two buildings, the partial demolition, reconstruction and refurbishment of a building known as the Assembly Building, and the construction of a new building, the Reid Building.
  • The Assembly Building was then let to the student union in return for a low rent.
  • GSA claimed input VAT on the works to the Assembly Building on the basis that in being rented out it was being used for wholly taxable purposes (it was opted).
  • HMRC objected the matter went to the First Tier Tribunal (FTT).

There were two issues:

(i) Whether the design, partial demolition, construction and refurbishment works carried out in respect of the Assembly Building constituted a separate supply for VAT purposes. One of the elements within this issue was the question whether the Assembly Building and the Reid Building were properly to be regarded as separate buildings or as a single building.

(ii) If the Assembly Building works did constitute a separate supply, whether the input tax on that supply was fully recoverable as having been incurred by the appellant for the purpose of making taxable supplies consisting of the rental of the building for a consideration.

The FTT found that:

  • There is and always has been a physical link between the buildings;
  • The whole construction was envisaged as a single project;
  • The whole site was repeatedly described as the Reid Building;
  • Functionality was not determinative because the student union could equally have been incorporated within a single new building;
  • There was no evidence that the Reid Building could have been constructed without the Assembly Building;
  • On the totality of the evidence, the edifice constructed was more akin to a semidetached building with an internal link.

The FTT, in dismissing the appeal, observed that it was not persuaded that it mattered whether there was one building or two. What did matter was whether there was one supply or two.

On appeal to the Upper Tribunal, GSA argued that the FTT had erred in law in holding that the Assembly Building and Reid Building were a single building for VAT purposes. On the primary facts found, the only inference open to the Tribunal was that they were separate buildings.

The UT held that:

  • The economic and commercial reality of the construction contract was a single development of the site as a whole.
  • The second principal issue, namely the VAT characterisation of a separate supply of services in relation to the Assembly Building, did not strictly arise as a result of the conclusion on the first point.

Although not necessary given the first finding, the UK UT would have held that GAS was not making taxable supplies to the Student Union.

  • What matters is that there be a direct link between the supply of the services and the consideration received by the taxable person.
  • The purpose of the supply was not to provide GAS with income from exploitation of the building but rather to facilitate the provision of a Union for students attending the School of Art.

Accordingly input tax on a separate supply of design and construction services in relation to the Assembly Building would not have been fully recoverable.

Practical tax guides on this topic

Single or Mulliple supplies
What to do when a transaction comprises several different elements

Partial exemption & input VAT recovery
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

VAT land and property notes
An outline of the VAT treatment of some of the more common supplies of land and property

External links

Glasgow School of Art v HMRC [2019] UKUT 0173