In the First-tier Tribunal (Tax) case of Taylor Wimpey PLC v Revenue & Customs  the Claimant Companies had been selling cookers and other white goods (‘Claim Items’) on the sales of new homes which were themselves zero rated. So they argued that the Claim Items were also zero rated. The Claimant Companies said that this followed from the rules on single and multiple supplies.
The supply of freeholds in new homes have always been zero rated. This is now covered by Group 5 of Schedule 8 to the Value Added Tax Act 1994 (‘VATA’).
However under a series of regulations known as “the Builders’ Block”, VAT was only permitted to be recovered on ‘core’ fixtures, as Parliament had not intended VAT on fittings to be recovered at all except where and to the extent that those fittings were materials, builders hardware, or sanitary ware.
The zero rate was intended to apply to what was properly seen as the house. Parliament’s intent was that the builders’ input VAT recovery on fittings and non ‘core’ fixtures would be blocked by the Builders’ Block.
The Claimant Companies’ case was that the Claim Items were not incorporated into the houses that were sold and that therefore, while a part of a single supply with the house, their ability to recover the input tax incurred on the Claim Items was not blocked by “the Builders’ Block” as a matter of UK law because the Claim Items were not “incorporated” into the houses.
The Tribunal found that as a matter of UK law, ‘incorporates’ meant anything physically attached to the house, even if merely plugged or plumbed in, to the extent it was a part of the zero rated supply of the house. It did not only refer to items incorporated as a fixture, although it obviously included them.
All the Claim Items, as they were at the very least operational and attached to the houses’ power supply, were incorporated for the purpose of the Builders’ Block to the extent that they were a part of the single zero rated supply of the new build.
In fact all the Claim Items were a part of a single zero rated supply and the Claim Items were all “incorporated” within the meaning of the Builders’ Block.
Had the Claimant Companies been right and “incorporated” meant only incorporated as a fixture:
– only the plugged in free standing white goods were not fixtures; and
– so only those goods would be outside the Builders’ Block; and
– the supply of them should have been standard rated. This would mean that the Claimant Companies would be, in principle, entitled to recover the input tax claimed, but it left unresolved whether the output tax, that would be due from the Claimant Companies to HMRC, must be offset against the reclaim.
The Claimant Companies had secondarily argued that the Claim Items were excepted from the Builders’ Block as being items “ordinarily installed” by builders as fixtures.
The first issue was the time at which “ordinarily installed” should be measured. The Tribunal settled for the date of the legislation. However, the legislation was re-enacted so “ordinarily” should be measured at the time of each re-enactment.
What was ordinarily installed increased over time. So, although some amendments removed specified items from the exclusion to the Builders’ Block, the effect was that the scope of the UK’s zero rate was increasing over time. Such an increase in scope might appear to be unlawful under EU law but the Tribunal was inclined to find that it was not an infringement of EU law.
If an item was installed as standard by house builders then it was ‘ordinarily’ installed within the meaning of the Builders’ Block. But the reverse was not true. The fact an item was not installed as standard it would not necessarily mean that it was not ordinarily installed. The legal test was only that they should be ‘usually’ or ‘commonly’ installed. ‘Ordinarily’ means no more than the item in question was more likely to be installed than not.
During the period of the claim high specification appliances and carpets were never ‘ordinarily’ installed in dwellings. This meant that as a matter of UK law they were never within the exclusion to the Builders’ Block.
That conclusion remained good whether they were fittings or fixtures: if they were fittings they could never benefit from the “ordinarily exclusion”. If they were fixtures, they could never benefit from the ordinarily exclusion because they were never ‘ordinarily’ installed in the claim period.
So far as low specification appliances were concerned, they only became ‘ordinarily’ installed in the 1990s. So as a matter of UK law they had never been able to benefit from the exclusion to the Builders’ Block. They were not ‘ordinarily’ installed when in 1984 white goods were specifically removed from the exclusion. So by the time they became ‘ordinarily’ installed, the law had been altered to specifically remove them from the exclusion to the Builders’ Block. Though as a matter of HMRC practice, low specification split level cookers were able to benefit from the exclusion to the Builders’ Block from 1975 to 1984.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.