Upper Tribunal clarifies VAT over white goods for Taylor Wimpey
The UK’s approach to ‘blocking’ VAT recovery on the installation of white goods, such as washing machines and fridges, by builders into new homes has been further clarified in an appeal brought by Taylor Wimpey over £53m of VAT recovery, with the Upper Tribunal rejecting the housebuilder’s claim that this approach was unlawful
12 Mar 2018
Ever since VAT was introduced into the UK in 1973, UK VAT law has prevented the recovery of VAT incurred on certain goods where they are supplied as part and parcel of the supply of a dwelling. At two First Tier Tribunals (FTTs), Taylor Wimpey argued that UK's ' builder’s block' was invalid under EU law and that the goods were not 'incorporated' into the dwellings or, if they were, that they were articles of a kind ordinarily installed by builders as fixtures.
Both FTTs found against the Taylor Wimpey argument for deduction of input tax incurred between 1973 and 1997. The claims related to the installation in newly-built homes of carpets and of kitchen appliances such as built-in ovens, hobs, extractor hoods, washing machines, microwave ovens, dishwashers, washer driers, tumble driers, refrigerators, freezers and fridge freezers.
The case then went to an Upper Tribunal in 2017, which agreed with the FTT rulings on most points, but allowed for some issues to be considered further. Now a second Upper Tribunal has considered four outstanding issues. [Taylor Wimpey plc and the Commissioners for Her Majesty’s Revenue and Customs,  UKUT 55 (TCC)].
The first was that the high specification appliances, that is those other than built-in ovens, hobs and extractor fans, were merely plugged and plumbed in. They were not built in or installed and were consequently not ‘incorporated’ for the purposes of the builder’s block.
The Upper Tribunal rejected this argument, referring to its finding in the first hearing that to be incorporated it was not necessary that an item should be integrated in the sense of being fixed to the fabric of the building or to a structure within it such as a cabinet or door.
The tribunal took the view that items that were placed in a space in a kitchen designed or intended to accommodate those items, were installed as fittings and were to be regarded as incorporated in the building for the purposes of the builder’s block.
The second issue, referred to as the ‘ordinarily installed’ issue, concerned whether some items were excluded from the input tax block in respect of periods before input tax deduction on those items was specifically blocked by legislative amendments in 1984, by reason of being articles of a kind ‘ordinarily installed by builders as fixtures’.
The Upper Tribunal found that the FTT had erred in law in its analysis of the ‘ordinarily installed’ test and that the matter should be reconsidered in relation to low specification appliances, comprising built-in ovens, hobs and extractor fans. Taylor Wimpey’s claim in respect of extractor hoods, therefore, was allowed from 1 January 1982 to 1 June 1984, when the input tax on such items was, in common with the input tax on most electrical goods, specifically blocked.
The third issue was the ‘single supply/multiple supplies’ issue. The question for the Upper Tribunal was whether any claim items were found not to be ‘incorporated’ within the meaning of the builder’s block, any such items were the subject of a separate standard-rated supply of goods, as contended by HMRC, or formed part of a single, composite, zero-rated supply of a new-build house, as argued by Taylor Wimpey. The tribunal held that since all of the claim items were found to be incorporated in a building, there was no dispute between the parties on this issue. The agreed position was that all the relevant supplies were single zero-rated supplies.
The final issue, referred to as the ‘offset issue’ concerned whether if any items were found not to be incorporated for the purposes of the builder’s block and were the subject of a separate standard-rated supply, the input tax deduction should be offset by the output tax that ought to have been accounted for on such supply.
The tribunal observed that had it decided that a claim item was not ‘incorporated’ in the building for the purpose of the builder’s block and was the subject of a separate standard-rated supply, then the effect of VATA 1994, s. 81(3) and (3A) would be to set the amount of output tax on the standard-rated supply for which Taylor Wimpey would be liable against the amount of input tax due from HMRC to the company. As the amount of such output tax would exceed the amount of input tax, the net result would have been that Taylor Wimpey’s claim in those respects would be reduced to zero.
The tribunal’s conclusion was that Taylor Wimpey’s appeal was allowed to the extent of input tax claims on extractor hoods in the period from 1 January 1982 to 1 June 1984 but was otherwise dismissed.
A Croner-i tax writer said: ‘The Upper Tribunal, in revisiting this lead case, affirmed its previous position that the builder’s block was lawful and it clarified the extent to which goods are treated as ‘incorporated’ in a building.
‘In particular, the Upper Tribunal held that plug-in appliances, such as fridges and microwave ovens, that are placed in a space designed to accommodate those items, with some reasonable expectation of permanence, are installed as fittings and are to be regarded as incorporated in the building for the purposes of the input tax block.’