Zero rating not allowed

A new building was constructed within the curtilage of an existing building both of which were owned by the taxpayer.

Planning approval for the new building had been obtained subject to the following proviso: ‘The development hereby permitted shall only be used for purposes either incidental or ancillary to the residential use of the property…’.

An issue arose as to whether the supplies of building services should be zero rated according to VATA 1994 Sch 8 group 6 item 2.

Item 2 applies to approved alterations to a protected building. Note 1 then stipulates that a protected building must remain as such and note 2 sets out various conditions including at (2)(c) that separate use is not forbidden by any covenant or statutory planning.

HMRC said the supplies should not be zero rated but the VAT tribunal ruled that separate...