In Yeshivas Lubavitch Manchester v HMRC [2019] UKFTT 0427 (TC), the First-tier Tribunal (FTT) has held that fees charged by a charity for the supply of nursery education were not remuneration and the charity was therefore entitled to VAT zero rating on construction services and building materials for an annexe because it did not use the annexe for business purposes.


Yeshivas Lubavtich Manchester (YLM) is a charity providing education for children between the ages of 3 and 16 in return for a fee (set at a level to cover costs). The charity also received donations without which it would have run at a loss.

In 2013, YLM decided to relocate the nursery and school to a newly acquired site. The new site had an existing building and a new single storey extension was to be constructed at the rear. YLM accepted that the work on the existing building was appropriately standard rated. It was the VAT treatment of the new structure that was in dispute. YLM contended it should be zerorated whereas HMRC was of the view that it should be standard rated.

YLM argued that the new structure qualified for zero rating under Items 2 and 4 in Group 5 of Schedule 8, Value Added Tax Act 1994 (VATA). YLM contended that the works were not excluded by Note 16 because the new structure was not an “enlargement of, or extension to” the existing building, but rather, an “annexe” that is capable of functioning independently from the existing building, with the new structure and the existing building each having their own means of access (Note 16(c) and Note 17).

Even if the requirements of Note 17 were satisfied, the new structure could only qualify for zerorating if it was intended for use solely for a relevant charitable purpose.

YLM appealed to the FTT.

FTT decision

YLM’s appeal was allowed.

In the view of the FTT, the new structure was not sufficiently integrated to be considered an extension to the existing building, although it did have a sufficient degree of integration to prevent it from being considered an entirely separate building. The FTT concluded that it was an “annexe” for the purpose of Note 16 and Note 17.

The FTT could see no reason why the annexe would not be capable of functioning independently. It had its own toilets, kitchen, storage and office spaces. It was connected to water and electricity. It had its own separate boiler, which could be controlled from within the annexe itself. In addition, the building and annexe had their own separate main points of access.

The FTT found that, while the nursery was funded in part from fees paid by families of children attending the nursery, the ability of the nursery to exist and to carry out its charitable purposes depended on the receipt of donations and grants from other sources. It could not be said the supply of nursery services was made for the purposes of obtaining income on a continuing basis. The FTT therefore concluded that the fees charged were not “remuneration” within the meaning of the Wakefield College test (Wakefield College v HMRC [2018] EWCA Civ 952).

The FTT relied on Customs & Excise Commissioners v Yarburgh Children’s Trust [2001]

BTC 5651 and Customs & Excise Commissioners v St Paul’s Community Project Ltd [2004] EWHC 2490 (Ch), in finding that the provision of a nursery by a charity was not a “business” within the meaning of Note 6.


This decision provides a useful summary of recent case law in this area and clarifies the ambit of the test for determining what constitutes economic activity as set out in the Wakefield College case.

The decision can be viewed here.