Goods incorporated into new dwellings
In February 2017, the UT released an interim decision in this case concerning the UK’s input tax block on certain items incorporated into buildings. The Fleming claim submitted by Taylor Wimpey (TW) was for VAT on low specification white goods, such as extractor hoods and ovens, high specification white goods, (fridges, washing machines etc.) and carpets.
Essentially, the taxpayer is looking to achieve VAT recovery on the basis that the block does not apply to the items or that the block was unlawful under EU law, but the items are still part of the zero rate supply of the dwelling. The initial UT, reached a different conclusion to the earlier FTTs, deciding that the block and the changes to it post 1978 were lawful under EU law. It also gave guidance as to which items are incorporated in the dwellings which was then left for the parties to decide. In this second UT decision the court has concluded:
Incorporation issues – with the parties failing to agree on this, the UT has now concluded that all the items were either fixtures or installed fittings and were incorporated in the buildings for the purpose of the block.
Ordinarily installed – the UT concluded that from 1 January 1982 to 1 June 1984 Low Specification Appliances, including extractor hoods, were ordinarily installed by builders as fixtures. Therefore, these were outside of the block. Extractor hoods were blocked from June 1984 because the block was extended at that time. VAT on the other Low Specification Appliances was not part of this claim.
Single supply / multiple supply – the UT noted this issue only arose to the extent that items were not either fixtures or installed fittings, and therefore not incorporated in buildings for the purpose of the Builder’s Block. Having concluded all claim items were fixtures or installed fittings and incorporated in the buildings there was no need to determine this point
Offset – again this was largely irrelevant but as it was a matter of law the UT considered the point. The UT concluded that the effect of s81(3) and 3A of VATA 1994 is to set the amount of output tax on the standard-rated supply for which Taylor Wimpey is liable, ignoring any time limits on recovery, against the amount of input tax due from HMRC to Taylor Wimpey. If relevant the amount of such output tax would exceed the amount of input tax, reducing any claim to zero.
Essentially, the UT has concluded that the block was lawful and that the majority of items were correctly treated as being within the block. The only items which fell outside the block so that the VAT was deductible were certain low specification items that were ordinarily installed by builders as fixtures, but this was only for a short period until the block was extended to cover them. The only Low Specification Appliances covered by the disputed claim were extractor hoods.
The case is of importance for Taylor Wimpey and other housebuilders given the size of the claim. Taylor Wimpey’s claim for example is over £60m. However, the VAT on extractor hoods for 2.5 years is likely to only be a small fraction of this total.