The Upper Tribunal recently heard a case that concerned the development of a nursing home on the site of a church. The site consisted of the main church building, which had been extended to the rear at some time in the past, a presbytery with access into the church on the north side of the church and a social club to the south. The site also contained several freestanding garages and outbuildings. The site was subsequently converted to a 72 bed nursing home and all that remained of the original site was the church in its original, unextended form.

The taxpayer was of the opinion that the development qualified for VAT zero-rating on the construction service it supplied whilst HMRC argued that the works were the conversion of the church to a relevant residential purpose chargeable to VAT at the reduced rate of 5%.

The First-tier Tribunal had previously decided in favour of the taxpayer but HMRC appealed this decision. The Upper Tribunal upheld the First-tier Tribunal's decision and dismissed HMRC's appeal. The Upper Tribunal agreed that the First-tier Tribunal had applied the correct test and that ‘considering the size, shape, function and character of the new work, the completed building, the nursing home, was so different from the existing building, the church, that it could not be said to constitute an enlargement of, or extension to, the church.’