On 26 February 2018, the Upper Tribunal8 allowed, in part, the taxpayer’s appeal in relation to its ability to recover input VAT incurred on the provision of certain white goods, kitchen appliances and carpets installed in newly built properties.
This was a referral back to the Tribunal in respect of certain issues remaining to be determined from a previous appeal. For our earlier commentary on the original Upper Tribunal decision, see here.
The taxpayer had submitted claims to HMRC for recovery of historic input tax amounting to over £51m, in relation to the installation of various items in newly-built properties (including ovens, surface hobs, extractor hoods, washing machines, microwaves, dishwashers, refrigerators, freezers and carpets).
The VAT so-called “builder’s block” prevents house builders from claiming input VAT recovery on certain specified goods supplied as part of a (zero-rated) dwelling. For the builder’s block to apply, the goods must be “incorporated” in the dwelling. However this does not include items “ordinarily” installed by builders as fixtures. The taxpayer had sought to recover input VAT on various items based on the following (alternative) arguments:
• the UK builder’s block was incompatible with EU law, or
• the items in question were not “incorporated” into the dwelling, or
• if incorporated, they were of a kind “ordinarily” installed by builders.
HMRC denied the taxpayer’s claims on the basis the items fell within the scope of the so-called “builder’s block”, so that any input tax incurred on these items was not recoverable.
The Upper Tribunal in 2017 held that the builder’s block was not unlawful under EU law but adjourned the hearing to allow the parties to agree the extent of the claim that related to goods that were not fixtures.
The parties were not able to reach agreement, however, so the Tribunal was required to apply its own test to various kitchen appliances. In particular, it had to decide whether certain items, which were not fixtures, were nonetheless fittings and incorporated. The Tribunal found that all items under consideration were either fixtures or installed fittings, and were therefore incorporated into the buildings for the purpose of the builder’s block. Only extractor hoods installed between 1 January 1982 and 1 June 1984, were “ordinarily installed” as fixtures and, therefore, fell within an exclusion from the application of the builder’s block.
The Tribunal confirmed that incorporation does not require an item to be integrated. Items may be freestanding but nonetheless be installed fittings because they can reasonably be expected not to be moved on a regular basis.
The decision can be viewed here.