18795

Value Added Tax – zero-rated supplies – Group 12 of Schedule 8, VATA 1994 – installation by a charity of new heating system in residential care home for the elderly – whether supply to a charity for making available to handicapped persons for their use of equipment designed solely for use by a handicapped person  - Items 2(g), 2(h) and 7 of Group 12 – heating system not designed solely for use by handicapped persons – whether supply to a charity of services of adapting goods to suit the condition of handicapped persons – Items 4 and 6 of Group 12 – works comprised installation of new equipment, not adaptation of goods – whether (in part) supply to a charity of a service of adapting a bathroom for use by a handicapped person – Items 11 and 13 – works did not comprise adaptation of a bathroom – appeal dismissed

LONDON TRIBUNAL CENTRE

	CHELTENHAM OLD PEOPLE’S HOUSING SOCIETY LTD	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR A E SADLER	  (Chairman)
						MISS S WONG CHONG FRICS

Sitting in public in Birmingham on 27 and 28 July 2004 

Mr Richard Vallat of Counsel, instructed by Messrs Hazlewoods, Chartered Accountants, for the Appellant

Mr Hugh McKay of Counsel, instructed by the Solicitor for the Customs & Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

Summary of the appeal and the decision

1.	This is an appeal by Cheltenham Old People’s Housing Society Ltd (“the Appellant”) against the decision of the Commissioners of Customs and Excise (“the Commissioners”) that the supply of goods and services comprising the installation of a heating system with low surface temperature radiators and covered hot water pipes in a residential care home for elderly people does not comprise a zero-rated supply within Group 12 of Schedule 8, Value Added Tax Act 1994 (“VATA”).  The Commissioners’ decision to this effect is comprised in their letters of 8 February 2002 and 4 July 2002 to the Appellant’s accountants.  We were asked to determine the matter in principle, without reference to the detailed figures, but we understand that the amount of VAT for which the Appellant is liable should the supply be a taxable, and not a zero-rated, supply, is approximately £18,500.

2.	The Appellant is a charity which runs two residential care homes and a nursing home.  The heating system was installed in one of the residential care homes.  The Appellant’s primary case is that the heating system comprised equipment and appliances designed solely for use by a handicapped person and that the supply was therefore within Item 2(g) and (h) and Item 7 of Group 12 of Schedule 8, VATA, being a supply of such equipment and appliances (and related installation services) made to a charity for making available to handicapped persons by sale or otherwise for domestic or their personal use.  Alternatively, the Appellant argues that the installation of the heating system comprised a supply within Items 4 and 6 of Group 12, being a supply to a charity of services (and a connected supply of goods) of adapting goods to suit the condition of handicapped persons.  Alternatively, and in relation to part only of the supply, the Appellant argues that the installation of the heating system in the bathrooms of the home comprised a supply within Items 11 and 13 of Group 12, being a supply to a charity of a service of adapting bathrooms, washrooms or lavatories for use by handicapped persons in residential accommodation where such adaptation is necessary by reason of the condition of the handicapped persons.

3.	The Commissioners argue that the Appellant fails in each of its submissions.  As to the Appellant’s primary case, the Commissioners argue that the Appellant cannot show that the heating system was designed solely for use by a handicapped person – the purpose of those who designed the heating system was to design a system for use by all the residents of the residential care home, only some of whom were handicapped.  As to the Appellant’s case that the installation of the heating system was a supply of services of adapting goods to suit the condition of handicapped persons, the Commissioners argue that there was no adapting of goods, but the installation of radiators and pipes which were installed as purchased.  As to the Appellant’s case that part of the supplies comprised adapting bathrooms for use by handicapped persons, the Commissioners argue that the replacement of one type of radiator with a low surface temperature radiator is not a change which is material enough to comprise an adaptation of the bathroom for use by handicapped persons.

4.	It is our decision that the Appellant fails in its appeal on all three grounds.  Although a significant proportion of the residents of the home are handicapped (as defined for Group 12 purposes) as well as elderly, it is our conclusion that neither the component parts of the heating system nor the heating system taken as an entity can be said to have been designed solely for use by a handicapped person – those who instigated, designed and installed the system acted with the interests in mind of all the residents, handicapped or otherwise.  We consider that the installation of the new heating system in the circumstances of this case cannot reasonably be said to be an adaptation of goods within Item 4 of Group 12.  As for the Appellant’s third case, we agree with the Commissioners that the works involved do not amount to the adaptation of a bathroom for use by a handicapped person.

The evidence and the findings of fact

5.	We made a site visit to Faithfull House, the Appellant’s residential care home where the heating system was installed, and where we were able to see the work which had been carried out, and, as we walked about the home, we were able to see some of the residents.  We heard evidence from the following witnesses who were called for the Appellant: Mr James Anthony Cox, the General Secretary and Chief Executive Officer of the Appellant from 1993 until June 2000 (Mr Cox was responsible for the decision to install the system and for instructing the engineering consultants who designed the system which was installed);  Mr Stuart L Bennett, Mr Cox’s successor as Chief Executive Officer of the Appellant (Mr Bennett supervised on behalf of the Appellant the tendering stages of the work, the appointment of heating engineers, and the installation by the engineers of the system in 2001);  and Mr Simon Hewer, the managing director of D J Hewer & Co Ltd, the heating engineers who installed the system.  We also had before us a witness statement in support of the Appellant prepared by Mr Kevin M Pugh, at the material times the operations director of Sure Foundation Building Services Limited, the engineering consultants who were appointed by the Appellant to advise on the installation of a low surface temperature heating system, who designed the system eventually installed, and who directed the installation of the system carried out by the heating engineers.  Mr Pugh was not available to be called as a witness at the hearing of the appeal, and his evidence as set out in his witness statement could not therefore be challenged by cross-examination on behalf of the Commissioners.  We therefore approach with some caution Mr Pugh’s evidence on any matters of contention, but we note that, in the crucial area of the intentions of those designing the system, Mr McKay for the Commissioners found some support for his case in the witness statement of Mr Pugh.  No witnesses were called for the Commissioners and Mr McKay limited himself to cross-examining the Appellant’s wtnesses.

6.	In addition we had a bundle of documents agreed between the parties.  These covered the background to the decision of the Appellant to install the new heating system, including the reports made by the body which regulates the home; the instruction and appointment by the Appellant of the engineering consultants; the options available to the Appellant as laid out by the engineering consultants; the design and specification of the system chosen; the contract for the installation and the invoices for the work undertaken; and the correspondence between the Appellant’s advisers and the Commissioners in relation to the work and the Appellant’s claim to have the supplies zero-rated for VAT purposes.

7.	From this evidence we find the facts set out in paras. 8 to 20.

8.	The Appellant is a charity which operates under the name “The Lilian Faithfull Homes”.  It was formed in 1946, and its principal object, which it adheres to, is “to carry on, for the benefit of the community, the business of providing accommodation and associated amenities for elderly persons in necessitous circumstances upon terms appropriate to their means, and to provide for aged persons in need thereof, accommodation and any associated amenities specifically designed or adapted to meet the disabilities and requirements of such persons.”

9.	The Appellant owns and runs three homes in Cheltenham, one of which is Faithfull House, where the works relevant to this appeal were carried out.  Faithfull House is a residential care home, providing long-term residential accommodation for up to 72 elderly residents.  The minimum age for occupation of a room in Faithfull House is 65 years and the majority of the current residents are older than 85 years.  The residents have moved to Faithfull House as their home, and they are encouraged to regard it as such, with as much independence as circumstances permit (to enter and leave as they wish and to receive visitors; to remain in their rooms or use communal dining and lounge facilities; to do their own laundry and clean their own rooms if they wish; to retain some of their own furniture and personal effects).  Most will have moved into the home because, for one reason or another, they no longer wish to live independently in their own homes:  perhaps because they are lonely, or are frail, or in some way find running a home themselves a burden which they no longer wish to bear.

10.	Apart from age, there are no criteria imposed for admission to Faithfull House.  In particular, it is not a requirement that a person seeking admission should be frail or disabled or be restricted in his or her mobility.  Nursing care is not provided other than by occasional visits from the district nurse (the Appellant has a separate nursing home), so that those who require such care are not admitted, and residents who reach a stage where such care is required move out of Faithfull House.

11.	Currently, (and in the absence of evidence it is assumed that the situation was not materially different when the heating system in question was planned in early 2000) one resident uses a wheelchair and approximately half of the residents require the use of an aid to mobility such as a zimmer frame, two sticks or a stick and handrail.  Of the remaining residents, some will make occasional use of a stick or the arm of a care worker to steady or support themselves, and the rest are fully mobile without any assistance or aid.  Faithfull House is a large old house with labyrinthine passages and stairways, and is fitted with wheelchair ramps, handrails, a passenger lift and stair lifts.  There is no distinction, in terms of design, fittings or equipment, between individual residents’ rooms occupied by those residents who are fully mobile and those who have mobility difficulties.

12.	Faithfull House is subject to regulation by the appropriate unit of Gloucestershire County Council Social Services department.  During the period from 1998 until 2000 the regulators expressed concern that the radiators of the heating system in Faithfull House could burn anyone who fell against them, especially if they fell and then had difficulty in moving away from the hot surface.  The heating system had unprotected pipes running through the building and old cast iron ridged radiators without heat protection.  The system functioned in the usual way, that is, by very hot water being pumped from the boilers through the pipes and radiators.  The system was old, and radiator temperatures were difficult to control, but in other respects the system was fully functional and not in immediate need of repair, alteration or replacement.  An Inspection Report of the regulator dated 24 June 1999 includes a requirement that the Appellant should, by 24 March 2000, “Provide thermostatic control on all radiators” and “Guard all hot surfaces”.  The “National Minimum Standards for Care Homes for Older People” set out by the Secretary of State for Health under the relevant provisions of the Care Standards Act 2000 in a statement dated March 2001 includes the following, as Standard 25.5:  “Pipework and radiators are guarded or have guaranteed low temperature surfaces.”  This standard currently applies to Faithfull House, and we were asked to assume that a comparable standard applied under the predecessor legislation in force at the times material to this appeal, and that the regulator was requiring compliance with that standard.

13.	In response to the requirements of the regulating body, the Appellant appointed Sure Foundation Building Services Ltd, engineering consultants, to make recommendations as to the way in which the heating system could be made compliant with the relevant standards and regulations.  The letter of appointment is dated 30 September 1999, and is addressed to Mr K Pugh, who was familiar with Faithfull House and its residents from previous work carried out by his firm.  The letter of appointment includes the following:  “We have an elderly heating system in Faithfull House and because of the changes in the rules and regulations we are under pressure from the regulators to install radiators which have a low temperature exterior so that residents cannot fall against them and burn themselves.”

14.	Mr Pugh and his colleagues produced a feasibility study dated 21 February 2000 entitled: “Heating System Replacement Feasibility Study”.  In the introduction to that study it is stated that:  “The existing central heating system at Faithfull House…does not comply with current Health and Safety guidelines, which advise on the risk of elderly persons falling against heated surfaces in buildings.”  The feasibility study proposed for consideration three possible courses of action in order to meet a requirement that recommended temperatures of heated surfaces of radiators, accessible pipes or panel type convectors should not exceed 43°C when the system is operating at the maximum design output: (1) fixing low surface temperature (“LST”) casings to cover existing radiators together with boxing in exposed pipes; (2) retaining existing pipework (boxing in exposed pipes) and replacing old radiators with new LST radiators;  (3) replacing the old pipework with a new two-pipe distribution system routed to minimise the amount of exposed pipework, and boxing in any exposed pipes, and replacing old radiators with new LST radiators.  In each case the existing heating and hot water system boilers (four in number) were to be used, but the third option included the installation of an additional boiler, and renewal of valves, pumps, pipework and other components in the boiler-room.  In each case the system used water heated up to 80°C.  The feasibility study recommended that the third option should be adopted, on the grounds that the manufacturers of the casings proposed in the first option could not guarantee that the surface temperature of the casings would not exceed 43°C, and that if the existing (and ageing) pipework were retained (as in the first and second options), it might not stand a pressure test.

15.	On 6 March 2000 the Appellant agreed to proceed with the replacement of the heating system, in accordance with the third option recommended by the engineering consultants.  The engineering consultants proceeded to prepare a detailed specification of the work required as set out in the third recommended option.  The Appellant appointed D J Hewer & Co Ltd, plumbing and heating engineers, to carry out the work in accordance with the specification and under the supervision and project management of the engineering consultants, and the work was completed by the end of August 2001.  The work was carried out in accordance with the specification, subject to minor modifications (for example, in siting radiators or routing pipes) made when practical issues arose during installation.  

16.	Approximately 173 LST radiators were installed, replacing all the “old” radiators throughout those parts of Faithfull House used by the residents (individual residents’ rooms and common parts).  LST radiators were installed in those bathrooms where previously there was no heating.  In those parts of the building used exclusively by staff, “normal” surface temperature radiators, rather than LST radiators, were installed – the system required no modification to cope with this, since “normal” or LST radiators could be used interchangeably.

17.	The LST radiators used in the heating system installed at Faithfull House were of the make “Stelrad LST 2”.  The manufacturers’ brochure refers to the fact that the surface temperatures of normal radiators may be as high as 80°C, and that touching such hot surfaces for only a few seconds can cause thickness burns.  It explains that the Stelrad LST 2 radiator has a maximum surface temperature of 43°C, making it appropriate for use where there are “the elderly, the very young, and the physically and mentally impaired” who “may not be able to react quickly enough to withdraw from contact with a ‘burning’ surface before it’s too late”.  It identifies, additionally, “schools, leisure centres, restaurants and all public access areas” as “safety-critical environments” where it might be appropriate to install the radiators.  The brochure is illustrated with Stelrad LST 2 radiators installed in an elderly person’s home, a nursing home and a child’s room.

18.	The brochure also refers to the complete nature of the Stelrad LST 2 radiators, in the following terms:  “The pre-assembled “package” allows for a simple installation technique which gives significant savings in time and cost.”  At Faithfull House the radiators were installed as purchased, without adaptation – all that was required was that the outer casings were removed for the radiators to be connected to the pipes and then replaced.

19.	The pipework installed for the new heating system comprised standard steel and copper tubing, and sections of pipework were fabricated (that is, cut to length, joined, or bent) both off-site and on-site, depending upon the circumstances.  Any “difficult” work (such as shaping the tubing for an unusual angle in the course of routing the pipework) was carried out off-site.  The design of the heating system provided for as much of the pipework as possible to be routed under floors or otherwise out of reach and touch, and where it was exposed it was then boxed in on-site with standard medium dense fibreboard.

20.	The existing four boilers used to heat the water for the heating system were retained (it is not clear whether any of these boilers related to the hot water system, which it appears was operated separately from the heating system).  An additional boiler was installed.  New primary heating and circulation pumps, valves, header tanks, pressurisation units, control panels and flues were installed, and all, or substantially all, of the pipework in the boiler room was replaced.

The statutory provisions and cases cited in argument

21.	Certain taxable supplies are zero-rated under the provisions of Section 30 VATA:-

(1)	Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section –
(a)	no VAT shall be charged on the supply; but
(b)	it shall in all other respects be treated as a taxable supply;
and accordingly the rate at which VAT is treated as charged on the supply shall be nil.

(2)	A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.

22.	Group 12 of Schedule 8 VATA, headed “Drugs, Medicines, Aids for the Handicapped, Etc” includes the following items which are relevant to this appeal:

Item 2	The supply to a handicapped person for domestic or his personal use, or to a charity for making available to handicapped persons by sale or otherwise, for domestic or their personal use, of – 
…
(g)	equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a handicapped person;
(h)	parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g) above;…

Item 4	The supply to a charity of services of adapting goods to suit the condition of a handicapped person to whom the goods are to be made available, by sale or otherwise, by the charity.

Item 6	The supply of goods in connection with a supply described in item…4….

Item 7	The supply to a handicapped person or to a charity of services necessarily performed in the installation of equipment or appliances (including parts and accessories thereof) specified in item 2 and supplied as described in that item.

Item 11	The supply to a charity of a service of providing, extending or adapting a bathroom, washroom or lavatory for use by handicapped persons – 
(a)	in residential accommodation, or
(b)	…
where such provision, extension or adaptation is necessary by reason of the condition of the handicapped persons.

Item 13	The supply of goods in connection with a supply described in item…11.

Note (3) to Group 12 provides:-

“Handicapped” means chronically sick or disabled.

Note (5J) to Group 12 provides:-

(5J)For the purposes of item 11 “residential accommodation” means – 
(a)	a residential home, or
(b)	self-contained living accommodation,
provided as a residence (whether on a permanent or temporary basis or both) for handicapped persons, but does not include an inn, hotel, boarding house or similar establishment or accommodation in any such type of establishment.

Thus Item 2 (g) and (h) (which relates to goods) is linked with Item 7 (services of installing Item 2 goods);  Item 4 (supply of services of adapting goods) is linked with Item 6 (the supply of goods in connection with the supply of services of adapting goods); and Item 11 (supply of services of providing, extending or adapting a bathroom etc) is linked with Item 13 (the supply of goods in connection with the supply of services of providing etc a bathroom etc).

23.	In the course of their submissions, counsel for the respective parties made reference to the following cases:  The David Lewis Centre (VAT 10860); CCE v David Lewis Centre [1995] STC 485;  Foxer Industries (VAT 13817);  Arthritis Care (VAT 13974);  CCE v Help the Aged [1997] STC 406;  Boys’ and Girls’ Welfare Society (VAT 15274);  Joulesave Emes Limited (VAT 17115);  and Vassall Centre Trust (VAT 17891).

The Appellant’s submissions

24.	Mr Vallat appearing for the Appellant made three principal, and alternative, submissions.

25.	His primary submission was that the heating system installed at Faithfull House should be viewed as a single entity, and that the supply of that system falls within Items 2(g) and (h) and 7 of Group 12 of Schedule 8 VATA, on the grounds that it is the supply to a charity for making available to handicapped persons for domestic or their personal use of equipment and appliances (namely the heating system) designed solely for use by handicapped persons, and of services necessarily performed in the installation of that equipment and appliances.

26.	If he failed in that primary submission, then he submitted that the supply made to the Appellant should be treated as falling within Items 4 and 6 of Group 12, being the supply to a charity of services of adapting goods (namely the heating system) to suit the condition of handicapped people to whom the goods are made available by the charity, and the supply of goods in connection with that supply of services.

27.	His third submission was the narrower point, which would require an apportionment of the costs of the supply, that where the work on the heating system carried out at Faithfull House related to the bathrooms, washrooms and lavatories, the supply to the Appellant falls within Items 11 and 13, being the supply to a charity of a service of adapting bathrooms, washrooms or lavatories for use by handicapped persons in residential accommodation where such adaptation is necessary by reason of the condition of the handicapped persons, and the supply of goods in connection with that supply of services.

28.	Mr Vallat accepted that, as a preliminary matter, he had to establish that all or some of the residents of Faithfull House are “handicapped” – if none were so, all his submissions failed.  His case was that some – perhaps the majority – of residents are “handicapped”.  He referred to Note (3) to Group 12, which defines “handicapped” to mean “chronically sick or disabled” (his view, with which Mr McKay agreed for the Commissioners, was that “chronically” qualifies “sick” only, and not “disabled”).  He also referred to the following passage in the tribunal decision in Help the Aged (VAT 14180) cited with approval in the judgement in CCE v Help the Aged [1997] STC 406 at p 411:

“Just because a person is elderly does not mean that he or she is disabled.  But where the physical condition of the person in question is so impaired on account of old age or as the result of a chronic condition that he or she cannot get about without a wheelchair or a walking aid, then he or she can in the ordinary and accepted sense of the term be said to be disabled.”

29.	He pointed us to the evidence of Mr Cox and Mr Bennett to the effect that at least half of the residents of Faithfull House require what he referred to as “a stick plus” (that is, a walking aid such as a frame, two sticks, or the use of a stick and a handrail) in order to move about the building.

30.	For his primary submission Mr Vallat asked us to accept that, notwithstanding that the pipework and radiators become annexed to the building once installed (and therefore as a matter of English land law, become part of the land), they nevertheless retain their identity, for VAT purposes, as “equipment” or “appliances” (Items 2(g) and 7) and “goods” (Items 4, 6, and 13).  If this is accepted, then the issue is whether the heating system, viewed as an entity, was “designed solely for use by a handicapped person”, as required by Items 2(g) and 7.  For these purposes he referred us to the decision in Foxer Industries (VAT 13817), which concerned the design and marketing of electric golf buggies sold for persons having difficulties getting around golf courses.  That case confirms that the expression “designed solely for use by a handicapped person” means “designed with the sole purpose of use by a handicapped person”, and not “designed for the sole use of a handicapped person” – “solely” qualifies “designed”, not “use”.  Thus the relevant question is whether the heating system was designed with the sole aim of meeting the requirements of the handicapped residents of Faithfull House, and it is irrelevant whether, if it was so designed, it was also used by the able-bodied residents.  As stated in the Foxer Industries case, the intention of the designer of the equipment is key in establishing the purpose for which the equipment was designed, but the evidence of the designer as to his intentions must be viewed in the light of any other surrounding evidence which might indicate the true nature of the designer’s intent.

31.	In the present case, Mr Vallat submitted, the Appellant was supplied with a bespoke heating system, and not radiators and pipework as separate items, so that, as in the case of The David Lewis Centre (VAT 10860) (which concerned, in part, a LST heating system installed in a residential care home for sufferers from epilepsy) it is the intention of the designer of the system as a whole that is relevant, and not the intention of the designers of the type of radiator or pipework installed.  This is in contrast with the case of Joulesave Emes Limited (VAT 17115), which concerned radiator safety cabinets widely marketed and installed, and where the intent of the designer of the cabinets when he originally conceived the cabinets was of principal relevance.  In the present appeal, Mr Vallat argued that the evidence demonstrated that the factor foremost in the mind of the designer of the heating system, Mr Pugh of Sure Foundation Building Services Limited, was the protection of the handicapped residents, as shown by the following statement in his witness statement:  “From my many visits to Faithfull House I was aware that the building was used as a residential care home for elderly people.  Some of these residents I noted were handicapped, used various walking aids or wheelchairs.  In these situations the avoidance of surface temperatures above 43°C is critical, since anyone falling against exposed pipework or a radiator, and being unable to move by himself or herself, would risk being burnt or badly scalded.  Furthermore it is my understanding that the majority of the Faithfull House residential accommodation was available to any resident, hence the handicapped were not restricted to one specific area of the building.”

32.	If he fails in his primary submission, Mr Vallat argues that the supplies should be zero-rated on the grounds that they comprise a supply to a charity of services (and related goods) of adapting goods (i.e. the existing heating system) to suit the condition of handicapped persons to whom the goods are to be made available, by sale or otherwise, by the charity, within Items 4 and 6 of Group 12.  Again, Mr Vallat asked us to accept that the radiators and pipework retain their identity as “goods” for VAT purposes, notwithstanding that they are fixtures to the land.  He argued that the reasoning of the tribunal in Boys’ and Girls’ Welfare Society (VAT15274) (see paras 42-43 of that decision) that a heating system is part of a building and is not therefore “goods” is wrong, and is based on a misunderstanding of the tribunal decision in Arthritis Care (VAT 13974), which held that buildings are land (and not goods), and not that fixtures are not goods.  He pointed out that the tribunal in The David Lewis Centre  (VAT 10860) implicitly accepted that a heating system is “equipment” or “goods” for VAT purposes.  On the basis, therefore, that the heating system comprised “goods”, then looking at the totality of the works, they could be regarded as the adaptation of the existing system, using the original boilers and installing an additional boiler.  The system should fairly be regarded as adapted “to suit the condition of a handicapped person to whom the goods are to be made available, by sale or otherwise, by the charity” – the requirement that the adaptation should suit the condition of a handicapped person looks only to suitability, not to the purpose of the design, as for Item 2(g), and here the adaptation of the heating system, whether or not it was designed solely for use by a handicapped person, was suited to the condition of such a person.

33.	Finally, Mr Vallat submitted that the Appellant should in any event succeed on the grounds that in so far as the supplies related to installing the heating system in the bathrooms (“common use” and en suite bathrooms) at Faithfull House (including those where previously there was no heating), those supplies were of a service of adapting bathrooms for use by handicapped persons in residential accommodation where such adaptation is necessary by reason of the condition of the handicapped persons, and therefore within Items 11 and 13 of Group 12.  He referred to the tribunal decision in Vassal Centre Trust (VAT 17891), where the installation of a new LST heating system in bathrooms in the course of installing a heating system which extended throughout the home, was accepted by the Commissioners as the adaptation of a bathroom.

The Commissioners’ submissions

34.	Mr McKay on behalf of the Commissioners took each of the Appellant’s three submissions in turn, stressing the need to view each as a distinct and discrete case, since the applicable legislation (the different Items of Group 12) required different tests to be applied.  As a general proposition he stated that the present case does not require us to draw out new principles from the legislation – it merely requires us to apply the clear language of the statute to the particular facts and circumstances of the Appellant and the work carried out.

35.	As to the Appellant’s primary submission, the Commissioners accept the dictum in the Help the Aged case as to when an elderly person may be regarded as “disabled”, and therefore “handicapped” for the purposes of Group 12, but it is important to note that, as that dictum makes clear, there is a distinction between “elderly” and “disabled” – the two terms should not be regarded as synonymous.  In the case of the residents of Faithfull House, all are “elderly”, but that does not in itself render them handicapped.  The Appellant adopted the line that if a resident required assistance in walking beyond the aid of a single stick, then that rendered him or her handicapped, but there should be no hard or fast rule.

36.	Of more significance is the question of whether the heating system was, in this particular instance, “designed solely” for use by handicapped persons.  The Commissioners accept that, as specified in the Foxer Industries case, the test is whether the equipment was designed with the sole purpose of use by handicapped persons.  The context here is a residential home for the elderly, where the residents are independent within the constraints of a communal home.  The new heating system was installed to comply with the requirements of the appropriate inspectorate, who were concerned with homes for the elderly, not necessarily the handicapped elderly.  The instructions by the Appellant to Sure Foundation Building Services Limited make no reference to the needs of handicapped residents, and the resulting feasibility study refers only to “the risk of elderly persons falling against heated surfaces”.  Further, the witness statement of Mr Pugh is unclear as to whether he had in mind, in designing the heating system, all the residents or just those who, in his view, were handicapped.  It cannot therefore be said that in this case the heating system was designed with the sole purpose of use by handicapped persons, and therefore the circumstances do not fall with Items 2(g) and 7 of Group 12.

37.	As to the Appellant’s second submission (that the heating system was an adaptation of goods to suit the condition of a handicapped person, within Items 4 and 6), Mr McKay argued that (leaving to one side the question of whether the heating system comprised “goods”, notwithstanding that it became a fixture to the buildings) the “goods” were the radiators and pipework, and that these were installed by way of replacement of what was there previously, not adapted (see the tribunal decision in Boys’ and Girls’ Welfare Society (VAT 15274) at para. 43 of that decision).  It is the case that four boilers were retained and were (with modifications made to them and with a further boiler newly installed) used in the new system, but boilers without the rest of the apparatus do not comprise a heating system, so that it cannot be said that, because the original boilers were retained, there was an adaptation of the existing heating system.  The Commissioners also contended that the boilers could not be said to be “made available” by the charity to the handicapped persons (as required by Item 4), and they further contended that they should be regarded as fixtures and therefore as no longer “goods”, as found by the tribunal in Boys’ and Girls’ Welfare Society.

38.	As to the Appellant’s final alternative submission, in the Commissioners’ view the installing of LST replacement radiators and attendant pipework in bathrooms in itself is not, as a matter of materiality, “adapting a bathroom”.

The decision

39.	We agree that it is necessary to consider each of the Appellant’s submissions as a distinct and discrete case, not least because the Appellant, in making its different cases, is required to put forward propositions which are inconsistent, for example as to whether the heating system is newly-installed equipment, or the adaptation of existing goods.

40.	In each case, however, we have to decide whether some or all of the residents of Faithfull House are “handicapped” for the purposes of the relevant zero-rating provisions, that is, chronically sick or disabled.  Faithfull House is a residential care home for the elderly.  It is not a residential care home for the handicapped.  A proportion of the residents have some incapacity as to their mobility as a result of physical impairment which is a consequence of the process of ageing (we had no evidence that residents were admitted in cases where they were handicapped as a consequence of disease, illness or accident).  A proportion of the residents are not in any way incapacitated as to their mobility.  Of those who have mobility difficulties, there are gradations of incapacity, ranging from those who require the occasional use of a stick, or the arm of a care worker, to steady themselves, to those who require at all times a walking aid such as a zimmer frame without which they cannot move about the building.  One resident (currently) requires the use of a wheelchair.

41.	It is not necessary for the purposes of this appeal to determine at what gradation of mobility incapacity a person becomes “disabled”.  In the Help the Aged case, as referred to above (para. 28), it was held that a person whose physical condition is so impaired that he or she cannot get about without a wheelchair or a walking aid is for these purposes disabled.  We think that the reference to “a walking aid” must mean something more than a stick, since “in the ordinary and accepted sense of the term” a person who requires a stick to get about cannot generally be said to be “disabled”.  Mr Vallat proposed a “stick plus” criterion, and on that test about half of the residents of Faithfull House would come within the definition of “handicapped”.  Even if that were considered to be too wide a test, it is clear to us, and we so find, that a material proportion – even if a minority – of the residents of Faithfull House are for these purposes handicapped.  We do not think we need to be more precise than this for present purposes:  there are at least some handicapped persons, a significant number, to whom the services may relate if the various requirements of the relevant Items of Group 12 are otherwise met.

42.	The Appellant’s primary case is that the heating system installed at Faithfull House was a supply of new equipment and appliances supplied to the Appellant for making available to handicapped persons by sale or otherwise, for domestic or their personal use, where the equipment is designed solely for use by a handicapped person, and as such, the supply of the equipment, and of the services necessarily performed in its installation, fall to be zero-rated within Items 2(g) and (h) and 7.  The Appellant, taking its cue from the tribunal decision in The David Lewis Centre case, argues that it is the heating system as an entirety, and not its individual component parts of LST radiators and pipework, which is the equipment which should be considered for these purposes, and the Commissioners do not demur from this approach.  That being so, the relevant issue between the parties is whether the heating system was “designed solely for use by a handicapped person”.  The Appellant is seeking the benefit of zero-rating relief and therefore it is for the Appellant to prove on the balance of probabilities that the heating system was so designed and that the relief claimed is therefore available.  It is our decision that the Appellant fails to establish that the heating system was so designed.  

43.	Both parties accept, as do we, that the expression “designed solely for use by a handicapped person” means that the equipment must have been designed with the sole purpose of being used by a handicapped person – it is not a requirement that the equipment should have been designed for the sole use of handicapped persons, so that if it is capable of being used by persons other than handicapped persons that is not fatal, provided that the person who designed it did so with the sole aim that it should be used by a handicapped person.  This is established in the Foxer Industries case, and see also the Boys’ and Girls’ Welfare Society case and the Joulesave Emes Limited case.

44.	In the present case, and in this we agree with Mr McKay, both those who instructed the designer of the heating system (Mr Cox, the then CEO of the Appellant) and the designer himself (Mr Pugh of Sure Foundation Building Services Limited) were more general in their intentions, seeking to provide a system for use by all the residents of Faithfull House, whether handicapped or not.  It is our finding that their purpose was to install a new heating system which gave protection to the elderly from the risk of burning.  That is an entirely proper and commendable objective, but it is broader than that which has to be proved in order to claim the benefits of zero-rating.

45.	It should be noted that, in installing the new heating system, the Appellant was responding to the requirements of the regulatory authority which supervised residential care homes for the elderly such as Faithfull House.  The relevant minimum care standards apply because the residents are elderly, not because they are disabled.  The Appellant would have been required to install the heating system in question even if every one of the residents of Faithfull House had been able-bodied.  It is therefore not surprising that such contemporaneous evidence as there is as to the intentions of Mr Cox (his letter of 30 September 1999 to Mr Pugh of Sure Foundation Building Services Limited (see para. 13)), and of Mr Pugh in designing the system (the introduction to the Heating System Replacement Feasibility Study dated 21 February 2000 (see para. 14)) refers to the regulatory requirements, the protection of residents generally, and the risks of elderly persons falling against heated surfaces.  Under cross-examination Mr Cox accepted that he equated “elderly” with “handicapped”, at least in relation to the residents of Faithfull House, and he surmised (in Mr Pugh’s absence from the hearing) that Mr Pugh, with his knowledge of Faithfull House and its residents, would take a similar view.  Something of that confusion is perhaps apparent in the witness statement prepared by Mr Pugh for the hearing, notwithstanding that he was then, we may assume, more knowledgeable of the significance of these distinctions for the VAT purposes of the Appellant (see para. 31).

46.	Mr Vallat argued that the real concern of the Appellant, and of Mr Pugh in designing the system, was to protect those residents who stumbled or fell against radiators or pipes and who could not move away from the hot surfaces, and that this category of residents could fairly be regarded as those who are handicapped, so that it was reasonable to conclude that the new heating system was designed solely for use by handicapped persons.  But elderly residents generally are at risk (as presumably the regulating authority considers), since the elderly but able-bodied may fall, may be concussed or dazed or injured by the fall, or may be slower in their reactions, so that they are in contact with the hot surface for the few seconds in which burns can be sustained, and no doubt, and quite properly, the Appellant and Mr Pugh had this wider concern in mind and were seeking to protect all the residents from such risk.

47.	From our own limited observation during our brief site visit we find it curious that Mr Cox and Mr Pugh should consider all the residents of Faithfull House to be handicapped simply because they are elderly:  some at least of those we saw were in no way incapacitated and could not on any measure be said to be disabled.  But in any event, if Mr Cox and Mr Pugh equated “elderly” with “handicapped” in relation to the Faithfull House residents, then in so doing they were using a different meaning of the term “handicapped” from that which is applicable for the relevant VAT purposes, and it cannot therefore be said that in respectively initiating and then designing the heating system they acted so as to design it solely for use by handicapped persons as that term must be applied for zero-rating purposes.

48.	For completeness we would add that had the Appellant argued that the component parts of the new heating system (LST radiators, pipework, and the valves and other boiler-room equipment) were separate items of equipment within Item 2(g), then we would have found that they were not designed solely for use by handicapped persons – the marketing material for Stelrad LST 2 radiators makes it quite clear that they were designed for use in a wider market (see para. 17), and the remaining component parts are standard heating system equipment.

49.	The Appellant therefore fails in its primary case.  For completeness we would add that, at least in relation to the Appellant’s primary case, the Commissioners did not seek to argue that the heating system was not “equipment” or “appliances” on the grounds that it was a fixture to land, and we are not therefore required to make a finding on the point (and see para. 53 below on this point).

50.	The Appellant’s principal alternative submission is that the work carried out in installing the heating system is zero-rated within Items 4 and 6 of Group 12, comprising a supply of services of adapting goods to suit the condition of a handicapped person to whom the charity makes the goods available (and that any goods supplied were supplied in connection with such a supply of services).  It is our decision that the Appellant fails in this argument also.

51.	It would seem that the “goods” which are adapted (if this line of argument is to succeed) must again be the entirety of the heating system:  if the “goods” are the component parts (LST radiators and pipework), then the evidence is clear that little, if anything, was required by way of adaptation – as we heard from Mr Hewer, the heating engineer who installed the system, the LST radiators as supplied by the manufacturer required no work to be carried out to them beyond that necessary to affix them to the wall and connect them to the pipes (the Stelrad LST 2 radiators were marketed on this basis – see para. 18).  Similarly the pipework was standard tubing which was installed in the normal way by the plumber’s arts.  Therefore the Appellant’s case would fail on these facts if the “goods” were the LST radiators and pipework. (We should mention that Mr Vallat claimed some support from the remarks of the tribunal in the case of Joulesave Emes Limited (VAT 17115) to the effect that Items 4 and 6 provided an alternative ground for zero-rating the supplies in that case, but it seems to us that the facts in that case are materially different, since it concerned the installation of fixed radiator covers or cabinets on existing “normal” radiators as a means of reducing surface temperatures, and the tribunal was prepared to accept that the installation of the covers or cabinets involved adapting the “normal” radiators.)

52.	If the “goods” are the heating system, there are two principal issues:  first, since the heating system is unquestionably affixed to the building and is therefore part of the land, is it “goods” for VAT purposes (or, put differently, is it the building which is being adapted);  secondly, if the heating system is “goods”, has there been an “adaptation” of goods, or the installation of something new by way of replacement?  The Appellant also has to show that the goods were adapted to suit the condition of handicapped persons, and that the goods (as adapted) are to be made available, by sale or otherwise, by the charity to the handicapped persons.

53.	The question of whether items of equipment affixed to buildings are or remain “goods” for VAT purposes raises difficult legal issues and the question is likely to have important implications well beyond the scope of those Items of Group 12 of Schedule 8 VATA with which we are concerned.  Without in any way criticising the way in which counsel in this appeal presented their respective cases, we think that this question was not explored by way of full legal argument – in part perhaps because the Commissioners argued their case principally on other issues.  It seems to us, for example, that the income tax cases on plant and machinery and the leasing of equipment affixed to land, and the extent to which equipment might be severable from the land to which it is affixed, might be instructive on the point. (In this respect we note that in the tribunal decision in The David Lewis Centre case (VAT 10860), on which Mr Vallat placed some reliance, the tribunal had been referred to certain of the income tax cases on the meaning of plant and machinery, and the tribunal was prepared to find that a heating system was “equipment” for the purposes of what is now Item 2(g), but that finding is simply stated and is not explained or expounded in any way.)  We note also that in the case of Boys’ and Girls’ Welfare Society (VAT 15274) the tribunal, when considering Item 4 of Group 12 in relation to the installation of a heating system, was of the view that “…the word “goods” is not apt to include buildings, with which we include fixtures in a building, such as a heating system”, but it is not clear that the matter was argued in detail before the tribunal, and, as Mr Vallat pointed out (see para. 32) although in reaching that conclusion the tribunal relied on the earlier tribunal decision of Arthritis Care (VAT 13947), in that case the point at issue was the different one of whether a building (not equipment affixed to a building) was “goods” for Item 4 purposes.  Since in the present appeal we are able to reach a decision on other grounds, in all the circumstances we think we should not make a finding on this important question.

54.	If for present purposes we assume that the heating system is “goods” for the purposes of Item 4, has there been an “adaptation” of goods?  It seems to us, on a common sense basis, that the nature and scope of the work carried out at Faithfull House was such that it comprised the replacement of the old heating system with a new heating system, not the adaptation of essentially the same system.  The original feasibility study prepared by the engineering consultants is entitled “Heating System Replacement Feasibility Study”, and the Specification which they prepared for the heating engineers makes reference to the installation of a “new heating system”, and that seems to us to be a fair description of what in fact happened.  

55.	Self-evidently, if equipment is removed and new equipment is installed in its place, that is not an “adaptation” of the old equipment – there must be at least something retained so that the “adapted” equipment is identifiably the same item as the equipment in its original, unadapted, form, and in this appeal the matter would be unarguable were it not for the fact that certain of the boilers at Faithfull House which heat the water circulated around the old system were, with modification, retained to carry out the same function for the new system (a new boiler was also installed to add to the capacity).

56.	Of course, hot water boilers are required for a heating system of the kind installed at Faithfull House to function, and can fairly be said to be integral to such a system.  But in this case everything was removed, including all the plant in the boiler-room, except for the actual boilers, so that what was left was not a heating system, but simply boilers which were of no use in themselves, and certainly could not function as a heating system.  To create a heating system the Appellant had to install new items of equipment to replace that which had been removed.  In our view that cannot simply be said to be “adapting goods”, even where the “goods” comprise the entirety of the heating system.  It may, as Mr Vallat said, be a matter of degree whether the works amounted to a supply of new equipment rather than the adaptation of goods:  if so then we are clear that in this instance the nature and scope of the work carried out comprised the installation of new goods to replace goods which were no longer required – replacing an old heating system with a new one, albeit retaining, in the boilers, an essential component  – and not the adaptation of goods, and we so find.  We note that the tribunal in the Boys’ and Girls’ Welfare Society case reached a similar conclusion on similar facts.

57.	This brings us to the Appellant’s final submission, which is that the installation of LST radiators and boxed-in pipework in the bathrooms in Faithfull House (whether by way of replacement of the “old” radiators and pipes, or by way of installing hot water heating in bathrooms previously without such heating) amounted to “the supply to a charity of a service of …adapting a bathroom…for use by handicapped persons in residential accommodation where such …adaptation is necessary by reason of the condition of the handicapped person”, so that such a supply (together with the supply of related goods) falls within Items 11 and 13 of Group 12.  It is our decision that the Appellant fails in this submission also.

58.	Even if we accept that in the case of each bathroom it could be said that it was for use by handicapped persons in circumstances where only about half of the residents of Faithfull House are “handicapped” for these purposes, and even if it could be said that the work was necessary by reason of the condition of the handicapped persons (as opposed to whether it was necessary – by way of compliance with the requirements of the regulating authority – by reason of the fact that the residents were elderly), we agree with the Commissioners that changing the provision of heat source in a bathroom so as to reduce the surface temperature of the heater is not in itself sufficiently material in its nature to amount to “adapting a bathroom”.  Item 11 is in terms of “…a service of providing, extending or adapting a bathroom…”, and it seems clear that what is envisaged is work of a structural nature, and certainly well beyond the scope of what was carried out at Faithfull House.  If one compared the bathroom before and after the work had been carried out, one would not say that the bathroom had been “adapted”, one would simply say that the radiator in the bathroom had been replaced.
  
59.	We note that in Vassall Centre Trust (VAT 17891) the Commissioners were prepared to accept that supplies comprising the installation of LST radiators in bathrooms in the course of the refurbishment of a building to turn it into residential accommodation for disabled persons were zero-rated whilst those comprising the installation of such radiators elsewhere in the building were not accepted as zero-rated, and the tribunal agreed with this distinction without further elaboration.  It is not clear from the reported decision why the Commissioners were prepared in that case to concede the zero-rating for the radiators in the bathrooms – perhaps it was in the context of the work as a whole to the building.  In any event, the point was not argued in that case, whereas the Commissioners chose to argue the point in the context of the work carried out at Faithfull House, and for the reasons given in the circumstances of this case we find that the work did not amount to the adaptation of the bathrooms at Faithfull House.

60.	The Appellant therefore fails in all its submissions, and the Appellant’s appeal is therefore dismissed.

61.	We make no order as to costs.

A EDWARD SADLER
CHAIRMAN
 
RELEASED: 8 October 2004

LON/2002/0651