20948
VAT – DIY BUILDERS SCHEME – Appellant claimed VAT on supply of a domestic fire sprinkler system – Respondents originally refused the refund on the ground that the sprinkler system was not building materials – Respondents changed its case arguing it was a mixed supply of goods and services – decided a composite supply of zero-rated services – Appeal dismissed
MANCHESTER TRIBUNAL CENTRE
P & M BATES Appellants
- and -
HER MAJESTY'S REVENUE and CUSTOMS Respondents
Tribunal: MICHAEL TILDESLEY OBE (Chairman)
Sitting in public in Birmingham on 17 November and 10 December 2008
The Appellants appeared in person
Richard Chapman Counsel on 17 November 2008 and James Puzey Counsel on 10 December 2008 instructed by the Solicitor of HM Revenue & Customs, for the Respondents
© CROWN COPYRIGHT 2009
DECISION
The Appeal
- The Appellants were appealing against the Respondents' decision to refuse the repayment of VAT in the sum of £297.83 on an invoice for a supply of a sprinkler system submitted as part of a Do it Yourself (DIY) Builders Scheme claim under section 35 of VAT Act 1994.
- At the first hearing on 17 November 2008 the Respondents changed the basis upon which they opposed the Appeal. They considered that the Appellants' claim was properly a matter under section 30 of 1994 Act, and any VAT recoverable would be from the supplier not the Respondents. The hearing was adjourned part-heard until 10 December 2008 to enable the Respondents to state their case. The Respondents were ordered to pay the costs of the Appellants for attending the hearing on 17 November 2008.
- The Appellants' claim was made in respect of the construction of a new qualifying dwelling. The disputed part of the claim related to an invoice dated 20 January 2006 raised by Compco Fire Systems in the sum of £1,702.13 plus VAT of £297.87. The invoice related to the installation of a domestic fire sprinkler system to the dining area.
- There were three possible analyses of the supply:
(1) A supply of goods in which case section 35 of 1994 Act (DIY Builders Scheme) applied, provided the domestic fire sprinklers constituted building materials within the meaning of Note 22 to Group 5 of Schedule 8 of the 1994 Act. The Respondents contended that fire sprinklers were not building materials because they were not goods ordinarily incorporated in a dwelling house. Thus they were standard rated supplies, prohibiting recovery under section 35 of the 1994 Act.
(2) A single composite supply of services in which case Item 2 to Group 5 of Schedule 8 of the 1994 Act applied. The effect was to zero-rate the installation of a domestic fire sprinkler system because it was a supply of services in the course of a construction of a building designed as a dwelling. Under this analysis the Appellants would be required to recover the VAT from the supplier of the sprinkler system. Further any supply of goods would be incidental to the supply of services.
(3) A mixed supply of services and goods in which case the supply of services would be zero-rated by virtue of Item 2 to Group 5 of Schedule of the 1994 Act. The separate supply of goods may be zero-rated under Item 4 to Group 5 of Schedule 8 of the 1994 Act provided they were building materials. Under this analysis the Appellants would be recovered to recover the VAT from the supplier of the sprinkler system.
- The Respondents contended that the disputed supply was a mixed supply of services and goods where the goods (the sprinklers) did not constitute building materials. Under this analysis the VAT on the goods supplied was standard rated and not recoverable. The supply of services was zero-rated but the VAT was recoverable from the supplier not the Respondents.
The Facts
- The Appellants were DIY builders. On 30 October 2001 the Appellants were granted planning permission to demolish an existing building and erect two detached dwelling houses (32 and 33 Marsh Road). The Appellant lived in 33 Marsh Road after it was completed and whilst 32 Marsh Road was being constructed.
- On 19 February 2004 the Respondents repaid VAT in the sum of £5,123.67 under the DIY Builders' Scheme in respect of 33 Marsh Road.
- 32 Marsh Road was a three storey building with large open living areas on the ground floor. The Appellants were required by building regulations to install a fire sprinkler system on the ground floor because the property was three storeys with a stairway that did not discharge into protected hallways. According to a letter dated 20 September 2007 from Mr Perks, Building Control Manager for Stratford-on-Avon District Council, three storey housing and the use of sprinkler systems were becoming more common because of pressures on land supply and the resulting increases in land prices.
- The Appellants obtained three quotes for the installation of the sprinkler system. They chose Compco Fire Systems Limited which installed the system for a price of £1,702.13 plus VAT of £297.87. The invoice dated 20 January 2006 was for a single price for a domestic sprinkler installation to dining area. The installation involved the fitting of heat sensitive pop out valves flush to the ceiling connected to heat resistant piping and manifold which permitted a non restricted flow of water in the event of a fire. The contractors spent one day designing and planning the system on site and two to three days installing it in the building. The heat sensitive pop out valves were off the shelf industrial products.
- On 19 January 2007 the Respondents received a VAT repayment claim of £15,092.69 under the DIY Builders' Scheme in respect of 32 Marsh Road. On 22 June 2007 the Respondents agreed to refund the majority of the VAT claim but refused to refund the VAT on the sprinkler system.
Reasons for Decision
- The Respondents contended that the disputed supply was not one of only goods because the supply involved an installation. Likewise, the supply did not constitute a single supply of services as goods were also provided under the invoice. The Respondents' preferred option was that the supply was a mixed supply of goods and services.
- I found the Respondents' analysis superficial without reference to the particular facts of this case. The invoice was for a single price to install a domestic fire sprinkler system. The materials used in the installation were not separately itemised or priced in the invoice. The materials were valves and pipes integral to the installation. The time spent in designing, planning and installing the sprinkler system clearly demonstrated that the contractor was supplying services with the materials used incidental to those services. The substance and reality of the supply was that it was one solely of services.
- Respondents' counsel argued that if the Tribunal decided that the installation of the sprinkler system was a composite supply of services, it was still open to it to apply differential VAT treatment to elements of the single supply under the authority of Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners [2006] STC 1671. Under Talacre Beach the European Court decided that the UK was entitled to treat a supply of a caravan as zero rated whilst its removable contents were standard rated even though the supply might be characterised as a single supply of goods. I did not consider that the principles established by Talacre Beach applied to the facts of this case as the materials were not physically and economically separable from the installation. Also counsel's proposition depended upon the heat sensitive pop out valves and the piping not being building materials within the meaning of Note 22 to Group 5 of Schedule 8 of the 1994 Act. The Respondents' arguments on building materials focussed on the installation as a whole rather than on the materials that made up the domestic sprinkler system, the valves, piping and manifold, which I consider to be building materials.
Decision
- I decide that the installation of the sprinkler system was a composite supply of services, which was zero-rated under Item 2 to Group 5 of Schedule 8 of the 1994 Act. Thus the Appellant's claim for refund of VAT under the DIY Builders Scheme fails as it only applied to a supply of goods. I, therefore, dismiss the Appeal.
- The Appellant can recover the VAT from Compco Fire Systems Limited. The Respondents undertook to advise Compco Fire Systems on the necessary accounting procedures to make the repayment. I direct the Respondents to advise Compco Fire Systems Limited within 14 days from the release date of the decision, particularly as the time limit for repayments is due to expire soon. I also direct the Respondents to ascertain the Appellants' costs for attending the hearing on 17 November, and if the costs cannot be agreed either party may apply to the Tribunal for determination. I make no order for costs in relation to the hearing on 10 December 2008.
MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE: 3 February 2009
MAN/2008/0046
