National carpet and flooring retailer Tapi Carpets Limited has been confirmed as not liable to account for over £13m in VAT on floor-fitting services carried out by independent fitters in a case against the HMRC.
The First-tier Tribunal found “that for VAT purposes the fitters supplied the fitting services which were made to the customers of Tapi in the relevant periods, in return for the fitting fees, and Tapi is not, therefore, liable to account for VAT on the fitting fees received by the fitters for such fitting services”.
The appeal was made against assessments issued by HMRC under the Value Added Taxes Act 1994 on the basis that Tapi was liable to account for value added tax chargeable under VATA of a total of £13.5m.
HMRC contended that this VAT is due on the supply of services of the fitting of flooring to Tapi’s customers who had purchased flooring from it, which took place in its quarterly VAT accounting periods from 06/19 to 12/23.
In a hearing, the tribunal heard that during the relevant periods, where a customer purchased a floor covering from Tapi, the customer essentially had a choice either (1) to fit the covering or arrange the fitting himself, or (2) to purchase from Tapi a floor covering fitting arrangement service for a specified fee.
Where a customer purchased the fitting arrangement service, (a) Tapi arranged for a fitter, who was wholly independent from Tapi but who was in a “pool” of fitters vetted by Tapi, to attend the customer’s premises physically to perform the fitting service, and (b) the customer paid the fitter the sum due for the fitting service when the fitter attended the customer’s premises to fit the flooring. Only scenario (2) is the subject of the appeal proceedings.
In summary Tapi has accounted for VAT in the relevant periods on the basis that where it provided the fitting arrangement service, (1) it acted as a disclosed agent for the customer in relation to arranging the fitting service, and (2) the fitting service was supplied by the fitter as principal.
It was common ground that (a) Tapi charged VAT on the arrangement fee at the standard rate and (b) many of the fitters were not registered for VAT and did not charge VAT on the fitting fees which they received from the customers.
HMRC made the assessments on the basis that in fact, in their view, under a form of sub-contracting arrangement, the fitters supplied the fitting services to Tapi and, as principal, Tapi made an onward supply of the services to customers. Accordingly, in HMRC’s view, Tapi should have accounted for VAT on the fitting fees received by the fitters at the standard rate.
In a small number of cases, customers specifically requested to pay Tapi direct for the fitting service when the customer entered into a contract with Tapi for the supply of flooring. In that case, Tapi considers that it supplied the fitting service and it charged VAT on the fitting fee.
The evidence is that this only applies to approximately 1.2% of the orders received by Tapi for flooring. Tapi’s treatment of these “invoiced fitting” supplies is not at issue in the appeal.
The tribunal ruled in Tapi’s favour and concluded that the independent fitters performed the work, were responsible for the fitting service, received payment directly from customers and entered into a contract with the customer on the installation date.
