Retailers selling flooring which is fitted by an external fitter are not liable for VAT on the installation, as the process is made up of different transactions, a VAT tribunal has ruled.
HMRC had argued that retailers were liable for the VAT as suppling and fitting was a single transaction and the situation applied across the flooring industry.
HMRC had launched a claim against a United Carpets franchisee – Thompsons Carpets, Mansfield –claiming that VAT was due on the fitting, as well as the selling of the flooring. Thompsons disputed the claim – which eventually totalled £375,000- but as the law stands, had to prove the claim was incorrect.
Eleven months later, in May 2021, HMRC told Thompsons it was withdrawing the VAT assessment.
In June 2021, a HMRC office told United that as part of an ongoing compliance check he would be looking into aspects other than the fitting, the whole matter was under consideration and HMRC was actively working on the situation, which affected the whole sector and not just United.
After various communications between HMRC and United, which included HMRC’s view that United was liable for the VAT on the fitting part as it made a single supply of fitted carpets, assessments totalling £496,823 covering February 2018-November 2021 were issued.
The First Tier Tribunal, of judge Natsai Manyarara and justice of the peace John Agboola, heard the case in May, before considering its verdict.
In its 31,000 word ruling, which found for United, it found that:
The contract between United and the customer was one for the ‘sale of goods’, not fitting services;
United’s role in the fitting of the flooring was ‘introductory’ in that it merely put a customer in contact with a fitter;
United did not contract to pay the fitters for work: the obligation to pay was with the customer;
The fitters’ contracts with customers were for flooring fitting services;
Signage in the store explicitly stated that United did not provide fitting services;
The economic and commercial reality of agreements between United and the fitters was not one of contractor and subcontractor: it was that the fitters were independent, and it was they who undertook fitting work for the customers;
The supply of flooring and fitting was not a single composite supply because the flooring and fitting service were not supplied by the same person.
HMRC has until 22 September. A HMRC spokesperson told Interiors Monthly: ‘We are carefully considering our next steps.’
The full FFT ruling can be fund here:
