Temporary Classrooms – back to where we were

The VAT treatment for the hire of temporary school classrooms has been bouncing around the court system and a case has now reached the Court of Session. This Court has overturned the verdict in the Upper Tribunal.

The case involved construction of a significant temporary classroom block, comprising two floors and 19 classrooms, hired for two years, but eventually extended to a period of 32 months.

The arguments raised had previously found that the building was a permanent structure and thus should be a VAT exempt supply of buildings, but the latest hearing has looked into the contractual circumstances to rule that there was only ever a temporary hire and that the classrooms were not a permanent building connected to the ground.

As a result VAT was correctly charged on the temporary classrooms.

Unless this case is further appealed this provides a clear indication that most school temporary classrooms should be subject to VAT as the hire of temporary facilities and not treated as a VAT exempt supply of immovable property.

This has cashflow consequences for academy schools, as the VAT on the hire costs will likely to have to be paid to the supplier before it can be recovered from HMRC. In addition, should the buildings be used for VAT-exempt business purposes (e.g. lettings) then there will also be an element of irrecoverable VAT involved, so this judgement is not necessarily the best outcome for academies.

The case can be read here: Sibcas Ltd v HMRC ([2018] CSIH 49).