Revenue and Customs Commissioners v Colaingrove Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 March 2014 |
| Neutral Citation | [2014] UKUT 132 (TCC) |
| Date | 21 March 2014 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2014] UKUT 0132 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
The Hon Mrs Justice Rose, Judge Roger Berner
Jeremy Hyam, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Appellants
Roderick Cordara QC, instructed by PWC Legal LLP appeared for the Respondent
Value added tax - Zero-rating - Static caravans in Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 8 group 9Sch. 8, Grp. 9 - Meaning of "removable contents" - VATA 1994, Value Added Tax Act 1994 schedule 8 group 5Sch. 8, Grp. 5, item 4 - Meaning of "building materials" - Meaning of "fitted furniture".
The Upper Tribunal (UT) has allowed in part HMRC's appeal against the First-tier Tribunal (FTT) decision in Colaingrove LtdTAX[2013] TC 02715, finding that the FTT had erred in the approach taken to determine whether items incorporated within a static caravan were "removable contents" within the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 9Sch. 8, Grp. 9, note (a) and so precluded from zero-rating (unless they fell within Value Added Tax Act 1994 schedule 8 group 5Grp. 5, item 4 (building materials)). The test was to differentiate between the container and its contents, and all items introduced into the shell of a caravan were inherently removable and it did not matter whether the caravan was "habitable" or not without the item, or how easy or difficult the item was to remove, or how much damage would be caused in the process.
HMRC appealed the decision of the FTT in Colaingrove LtdTAX[2013] TC 02715 in which the FTT held that certain items commonly supplied as part of the contents of a static caravan fell to be zero-rated for VAT purposes, contending that all of the items considered were standard rated.
The legislation in point was VATA 1994, Value Added Tax Act 1994 schedule 8 group 9Sch. 8, Grp. 9, item 1 which provided for zero-rating of static caravans and note (a) which excluded from the zero-rating "removable contents other than goods of a kind mentioned in Value Added Tax Act 1994 schedule 8 group 5Grp. 5, item 4". In other words, if the item in question could be classed as "removable contents" it would be standard-rated unless it could be classified as "building materials" (items within Value Added Tax Act 1994 schedule 8 group 5Grp. 5, item 4) in which case it would be zero-rated. Value Added Tax Act 1994 schedule 8 group 5Notes (22) and (23) to Grp. 5, item 4 provided a definition of "building materials" as excluding "fitted furniture" (except fitted in kitchens), "electrical or gas appliances" (subject to a number of exceptions) and "carpets". Such items would, therefore, be standard rated.
The FTT had found firstly that certain items including a fixed mirror, various fitted storage units, a fitted oven and hob and glued down carpets were not removable contents so were zero-rated; however, the UT found that this was incorrect and that all 19 items considered were removable contents. The FTT were wrong to consider whether what was left once an item was removed was a "habitable" caravan and it did not matter how easy or difficult the item was to remove or how much damage was caused to the caravan by its removal. No one was going to remove the items, the exercise was a theoretical one of apportioning the contents as either zero-rate or standard rated.
The UT confirmed that zero-rating applied to caravans incorporating all of those removable contents of a kind with ordinary building materials, i.e. the caravan shell together with the zero-rated building materials, and the use of the word "removal" was simply to distinguish between contents and container. Thus a mirror fixed to the wall, carpets, ovens, settees, beds, kitchen work surfaces were all inherently removable contents because they were items that had been incorporated into the shell of the caravan and could, therefore, be unincorporated or removed.
Having determined that all 19 items were "removable contents", the question was then whether the items were "building materials" or rather whether the items were "fitted furniture" as this would mean they were not building materials. In this respect, the UT found that there was no error in the FTT's approach and for the six items that the FTT had found to be zero-rated because they were not fitted furniture so, therefore, were building materials and zero-rated, HMRC's appeal was dismissed.
With regard to three items that the FTT had held were not removable contents (so were zero-rated), the UT found that: (1) the carpets were excluded from building materials by note (22)(d) so were standard-rated; (2) the oven and hob were also excluded from building materials by note 22(c) by not falling within (i) or (iv) so were standard-rated; and (3) the kitchen work surface fell to be furniture designed to be fitted in kitchens within the proviso to note 22(a) so was zero-rated. HMRC's appeal was, therefore, allowed in respect of the carpets and oven but dismissed in respect of the worktop.
With regard to the remaining items that the FTT had held would be standard rated only if they were easily removed and zero-rated otherwise (the various storage units and fixed mirror), these items were standard rated regardless of how they were fixed because they were removable contents not of a kind with building materials and HMRC's appeal was allowed in this respect.
In this case, the UT has found that the FTT's rather complicated method of deciding whether items incorporated in a static caravan were to be zero-rated within VATA 1994, Value Added Tax Act 1994 schedule 8 group 9Sch. 8, Grp. 9 or not, was incorrect. Removable contents are excluded from zero-rated treatment by Value Added Tax Act 1994 schedule 8 group 9Grp. 9, note (a) but the FTT had found that certain items, such as glued down carpets, fixed mirrors, fitted storage units, a cooker, hob and kitchen worktop could all be zero-rated because they could not be removed easily or because their removal would damage the caravan or otherwise render it uninhabitable. However, the UT has found that this approach was incorrect and that the FTT were wrong to take into account factors such as how easily items could be removed, what tools were needed to remove them or how much damage would be caused to the fabric of the caravan in removing them. The test was simply as between contents or container and accordingly, all of the items considered were removal contents and, prima facie, standard rated, although HMRC's appeal was allowed in part only because zero-rated treatment was preserved in respect of a number of items that fell within the "building materials" exception.
The appeal of the Appellants IS ALLOWED IN PART
[1]This appeal raises the issue of how many of the contents of a static caravan fall to be zero-rated for VAT purposes and how many are subject to the standard rate of VAT. The Respondent ("Colaingrove") sells static caravans. The caravans are supplied to the purchaser with all the fixtures and fittings inside: wardrobes, a kitchen, carpets, a bathroom, light fittings and so forth. The First-tier Tribunal (Judge Charles Hellier and Mr Tym Marsh) was asked to deliberate on a list of 20 items commonly supplied inside the caravan ranging from venetian blinds to beds. In their decision dated 6 August 2012 they decided that some were zero-rated, some were standard-rated and for some items it would depend on how the item was fixed to the walls of the caravan and how much damage would be caused to the caravan if the item were removed.
[2]The statutory route to discovering which items are zero-rated and which are not is a tortuous one. As the First-tier Tribunal said: "the legislative framework is beset by exceptions to exceptions to exceptions". The assessments which are the subject of this appeal span the period 1989 to 2008 but the legislation has remained constant for all relevant purposes over that time. We have based our findings, as did the First-tier Tribunal, on the legislation currently in force.
[3]The starting point is Value Added Tax Act 1994 schedule 8Schedule 8 to the Value Added Tax Act 1994 ("the VAT Act") which sets out items to which zero-rating applies. Group 9 provides:
Item No.
1.Caravans exceeding the limits of size the time being permitted for use on roads of a trailer drawn by a motor vehicle having an unladen weight of less than 2030 kg.
2.Houseboats being boats or other floating decked structures designed or adapted for use solely as places of permanent habitation and not having means of, or capable of being readily adapted for, self-propulsion.
3.…
Note: This Group does not include -
(a) removable contents other than goods of a kind mentioned in Value Added Tax Act 1994 schedule 8 group 5item 3 of Group 5; or
(b) …
[4]It was common ground that the reference in note (a) to item 3 was wrong. It should have been changed to "Value Added Tax Act 1994 schedule 8 group 5item 4 of Group 5", when Group 5 was amended in 1995 by the addition of a new item 3 which displaced the old item 3 to item 4.
[5]Item 4 of Group 5 in Schedule 8 to the VAT Act ("item 4") covers:
4.The supply of building materials to a person to whom the supplier is supplying services within item 2 or 3 of this Group which includes the incorporation of materials into the building (or its site) in question.
[6]The phrase "building materials" in item 4 is defined in some detail in notes (22) and (23) to item 4:
-
(22)"Building materials", in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description, (or its site) but does not include -
(a) finished or...
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