Envoygate (Installations) Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 February 2014 |
| Neutral Citation | [2014] UKFTT 221 (TC) |
| Date | 27 February 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 221 (TC).
Judge Edward Sadler, J R Cherry FCA.
Timothy Brown, of counsel, instructed by Taxwise Business Services, appeared for the Appellant
Lesley Bingham and Richard Mansell of HMRC Appeals and Reviews Department, appeared for the Respondents
Value added tax - Supply of replacement box sash windows and supply of draught stripping for windows - Installation of energy-saving materials - Supplies at reduced rate of VAT - Whether single supply or separate supplies so that supply of draught stripping for windows is a supply at reduced rate - If single supply, whether nevertheless the reduced rate of VAT should be applied to draught stripping work as a concrete and specific aspect of the single supply - On the facts the supply of draught stripping for windows is a separate supply taxable at the reduced rate of VAT - Appeal allowed - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 section 29As. 29A and schedule 7A group 2Sch. 7A, Grp. 2.
The First-tier Tribunal (FTT) allowed the appeal by Appellants against HMRC's decision that there was a single supply liable to the standard rate of VAT.
The Appellants supply and fit:
(2) high-quality bespoke box-sash windows; and
(3) draught stripping for windows.
Usually, a customer ordering replacement windows also orders draught stripping to be fitted when the windows are fitted. However, some customers purchase only draught stripping to be fitted to existing windows. Also, some customers purchase replacement windows without on the same occasion purchasing draught stripping.
The Appellants charged VAT at the standard rate on all supplies of replacement windows, but charged VAT at the reduced rate of five per cent on all supplies of draught stripping, including where the customer purchased both replacement windows and draught stripping.
HMRC accept that supplies of draught stripping qualify for the reduced rate. However, they argue that, where a customer purchases both windows and draught stripping, there is a single supply, and that supply is a supply of a "window with draught stripping" and as such is standard-rated.
The Appellants argue, first, that they are making two separate supplies where a customer purchases both replacement windows and draught stripping, and that therefore they have correctly charged the reduced rate on the supply of draught stripping. Alternatively, the Appellants argue that, even if in these circumstances, there is a single supply for VAT purposes, the draught stripping is a concrete and specific element of that supply, which Grp. 2 recognises is reduced-rated, and accordingly reduced-rating applies to that element of the supply.
The parties agreed that the appeal relates to transactions where the Appellants supply to customers on the same occasion both replacement windows and draught stripping for windows. In relation to those transactions, the issue is whether, for VAT purposes, there is a single supply of a window, or two separate supplies (a supply of a window and a supply of draught stripping for windows). If the FTT decided that there is a single supply of a window, then the FTT must decide whether the element of that single supply which comprises the provision of draught stripping for windows is nevertheless taxable separately at the reduced rate.
The FTT held at para. 10 of the decision that the Appellants make two separate supplies, and that the supply, which comprises the provision of draught stripping for windows, is reduced-rated.
The FTT held at para. 45 that, where the Appellants supply both replacement windows and draught stripping to a customer in the course of a single transaction, then viewing that transaction from an economic viewpoint those two elements of the transaction cannot be said to be so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split.
The order placed by the customer identifies clearly and with detailed description the different products which the Appellants supply. The form of the order allows the customer, where several windows are to be replaced, to opt for draught stripping for some of those windows, rather than all (and to opt additionally for some windows that are to be retained to be fitted with draught stripping). The different elements are individually priced in the order form. Separate pricing is credible and justifiable, not only because it is related to the detailed description in the order form, but because it can be related back to the cost of the elements, since the replacement windows and the draught stripping are manufactured by separate teams. The fitting of each element is a separate if (usually) consecutive task, which can individually be costed. In addition, the customer can choose when the replacement windows are fitted and when (on a later occasion) the draught stripping is fitted. These circumstances indicate that customers knew that they were purchasing two distinct products, and that they intended to do so (para. 46 of the decision).
Physically the customer receives, and has fitted separately, two distinct items, the replacement window and the draught stripping. Neither is, as to its nature, features or its function, dependent on the other. The draught stripping is not attached to the replacement window, but to the customer's fixed window frame. The replacement window functions as a window (letting in light, keeping out weather while closed, letting in air while open) without the draught stripping. The draught stripping only functions when there is a window for which it provides a cushion, but that does not have to be the window which is the replacement window. The replacement window has the greater value, but (at 50 per cent of the value of the replacement window) the draught stripping is a product of significant value in its own right (para. 47 of the decision).
At para. 62, the FTT also held that if, contrary to the conclusion above, the Appellants made a single supply of replacement windows and draught stripping, the entirety of that supply is standard-rated.
When deciding if there were multiple supplies, few cases are a reliable precedent. Circumstances dictate which criteria are relevant. The FTT must construe the law on reduced-rating strictly, since it is an exception to the general principle that supplies are chargeable to VAT at the standard rate.
[1]This is an appeal by two associated companies, Envoygate (Installations) Limited and Richvale Limited (together, "the Appellants") against assessments to value added tax made by The Commissioners for Her Majesty's Revenue and Customs ("HMRC").
[2]The Appellants carry on the business of supplying and fitting high quality bespoke box sash windows and also of supplying and fitting draught stripping for windows. In most cases a customer of the Appellants ordering replacement sash windows will additionally order draught stripping to be fitted when the windows are fitted, but some customers purchase only draught stripping to be fitted to existing windows, and some customers purchase replacement windows without on the same occasion purchasing draught stripping.
[3]During the period with which this appeal is concerned the Appellants charged VAT at the standard rate on all supplies of replacement sash windows, but charged VAT at the reduced rate of 5% on all supplies of draught stripping, including those occasions where the customer purchased both replacement sash windows and draught stripping.
[4]HMRC accept that supplies of draught stripping qualify for the reduced rate of VAT. However, they argue that where a customer purchases both sash windows and draught stripping there is a single supply made by the Appellants, and that supply is a supply of a window with draught stripping and as such is chargeable to VAT at the standard rate.
[5]The Appellants case is, first, that they are making two separate supplies where a customer purchases both replacement sash windows and draught stripping, and that therefore they have correctly charged the reduced rate on the supply of draught stripping. In the alternative, the Appellants argue that even if in these circumstances there is a single supply for VAT purposes, the draught stripping element is a concrete and specific element of that supply which the VAT legislation recognises should be taxable at the reduced rate and accordingly the Appellants are entitled to charge VAT at the reduced rate on that element of the supply.
[6]The assessments against which the Appellants appeal (all of which are made to best judgment by HMRC) are as follows:
(2) Assessments made on 9 June 2011 against Envoygate (Installations) Limited for its quarterly VAT accounting periods during the period 1 October 2007 to 31 March 2011. The amount of tax assessed is £330,167.00, and interest of £14,682.85 is assessed.
(3) Assessments made on 10 January 2012 against Envoygate (Installations) Limited for quarterly VAT accounting periods 6/11 and 9/11. The amount of tax assessed is £64,070.00, and interest of £612.55 is assessed.
(4) Assessments made on 15 February 2011 against Richvale Limited for its quarterly VAT accounting period 12/07. The amount of tax assessed is £4,534.00, and interest of £573.12 is assessed.
(5) Assessments made on 16 June 2011 against Richvale Limited for its quarterly VAT accounting periods 03/08, 06/08 and 09/08. The amount of tax assessed is £29,843.00, and interest of £3,156.95 is assessed.
[7]As mentioned, all the assessments were made to best judgment. It transpired at the hearing that in making the assessments no allowance had been made by HMRC for the fact that a portion of the supplies made by the Appellants are supplies of draught stripping for windows only (that is, where there were no supplies of replacement sash windows). HMRC accept that those supplies are...
To continue reading
Request your trial