In NHS Ayrshire & Arran Health Board v HMRC [2025] TC09511, the First Tier Tribunal (FTT) found that part of a National Secure Adolescent Inpatient Service building was not intended to be used solely for a ‘relevant residential purpose’. It was a ‘hospital or similar institution’, meaning that construction services and materials used in its build could not be zero-rated for VAT.
NHS Ayrshire & Arran Health Board (the Board) commissioned the construction of a building for a National Secure Adolescent Inpatient Service (NSAIS), located in the grounds of Ayrshire Central Hospital.
- The Board requested a non-statutory clearance from HMRC to treat the Construction services and materials used in the building of part of the structure as zero-rated for VAT.
- The part of the building in question was the accommodation wing, which the board considered to be of a ‘Relevant residential purpose’.
- HMRC refused to give non-statutory clearance because NSAIS was a ‘hospital or similar institution’.
- The Board Appealed to the First Tier Tribunal (FTT).
Under VATA 1994, Schedule 8, Group 5 Item 2, zero-rating applies to a supply in the course of the construction of a building designed as a dwelling or a number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose.
Note 4 to the group defines ‘relevant residential purpose’ use as (excepting a hospital, prison or similar institution or hotel, inn or similar establishment):
- A home or other institution providing residential accommodation for children.
- A home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder.
- A hospice.
- Residential accommodation for students or school pupils.
- Residential accommodation for members of any of the armed forces.
- A monastery, nunnery or similar establishment.
- An institution which is the sole or main residence of at least 90% of its residents.
For the definition of a hospital, the FTT looked to s.108(1) National Health Service (Scotland) Act 1978, which defined 'hospital' as:
- Any institution for the reception and treatment of persons suffering from illness.
- Any maternity home.
- Any institution for the reception and treatment of persons during convalescence or persons requiring medical rehabilitation, and any institution for providing dental treatment maintained in connection with a dental school, and includes clinics, dispensaries, and out-patient departments maintained in connection with any such home or institution, and 'hospital accommodation' shall be construed accordingly.
The FTT found that:
- Nursing monitoring and treatment were carried out within the accommodation wing. It was not used solely for a relevant residential purpose.
- The business case for the building referred to the accommodation wing as a ‘ward’.
- The wing was integrally and inextricably linked to the treatment provided to the patients who were detained at NSAIS, which is a hospital or similar institution.
- The above findings denied the applicability of Note 4. As a consequence, zero-rating for construction services and materials used to build the accommodation wing was not available.
The appeal was dismissed.
Useful guides on this topic
Land & Property: Relevant residential & relevant charitable purpose
What are the VAT rules for land and property that is used for a relevant residential purpose or a relevant charitable purpose? What are the clawback provisions affecting a change of ownership or use?
Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.
Health and welfare: VAT
When does reduced rating, zero-rating and VAT exemption apply to services relating to medical care, health and welfare? What are the rules?
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