Revenue and Customs Commissioners v Wetheralds Construction Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 May 2018 |
| Neutral Citation | [2018] UKUT 173 (TCC) |
| Date | 30 May 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0173 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Roger Berner, Judge Thomas Scott
Hui Ling McCarthy QC, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Tim Brown, counsel, Instructed by Hallmark Solicitors, appeared for the respondent
Value added tax – Reduced-rating for energy saving materials – Whether appellant's Solid Roof System a supply of insulation for roofs within VATA 1994, Sch. 7A, Grp. 2 – No – HMRC's appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ([2017] TC 05552) and held the supply was of a replacement roof (standard-rated), rather than of roof insulation (reduced-rated).
Wetheralds sold the Solid Roof System, which involved supplying roof insulation to make conservatories warmer in the winter and cooler in the summer. The existing roof structure of the conservatory was retained. Although the advertising included terms like “replace” and “new roof”, this was claimed to be mere “advertising” talk. There was a conversion, from a partly unusable conservatory to a fully-insulated and year-round-usable conservatory. Wetheralds argued that:
- there was a single supply of insulation for roofs of conservatories and reduced-rating applied. The tiling was ancillary to the supply of insulation; or
- if there were two supplies, the consideration should be apportioned.
HMRC decided that, where the supply was of a “roof”, being either a complete replacement or the addition of tiling to the existing roof, then the whole supply was of a standard-rated roof. Regardless of whether the existing (polycarbonate or glass) roof remained, adding tiles to the conservatory significantly altered the roof, so that the roof was the dominant supply and the insulation was an ancillary supply. The work replaced a conservatory roof with a new roof, which had better insulating properties.
The FTT considered whether the supply was “insulation for … roofs”, so that the supplies were reduced-rated under VATA 1994, Sch. 7A, Grp. 2. The FTT held that two or more elements were supplied and were so closely linked that they formed, objectively, a single, indivisible economic supply, which it would be artificial to split. As regards whether either element predominated, the FTT held that the insulation and its framework did so. What a customer wanted was a conservatory that is usable throughout the year, i.e. neither too hot nor too cold. The roof tiling was both aesthetically pleasing and protective (and so not ancillary), but it was the minor element. Thus, the FTT held that there was a single supply of insulation materials with their supporting framework and the other elements, which made it both more pleasing to look at and more durable.
HMRC argued that the FTT should have held that the various elements of the supply formed a single indivisible supply of a roof, not merely of “insulation for … roofs”, which was standard-rated.
The UT decided that the FTT apparently first determined that the supply was “insulation”, and then that, because of its place of installation, it must be “for roofs”. However, the critical question is whether the supply of energy-saving materials is “for” a wall, floor, ceiling etc, or is a more extensive supply, such as the ceiling itself. That was the question which the FTT should have considered.
The UT held that the scope of reduced-rating within Note 1(a) is not determined by whether the materials are “attached or applied”, but by whether what is supplied is confined to insulation or extends further than that, to a roof or a replacement roof itself (para. 32 of the decision).
Also, the UT held that the FTT failed to give sufficient weight to the findings of fact regarding Wetheralds' presentation of the Solid Roof System and the expectations of the customer. The patent application referred repeatedly to “a roofing assembly”. If these facts had been given proper weight, they would have led to the conclusion that what was supplied was not merely insulation (para. 33 of the decision). The was sufficient for HMRC's appeal to succeed.
However, the UT also considered the FTT's approach to the “single supply” analysis. The characterisation of a supply should take account of all elements of the supply, while avoiding an unduly detailed dissection of the elements comprised in the supply. The UT held that a typical consumer of the Solid Roof System would describe the supply as a thermally efficient replacement roof, and not merely as the insulation included within the System (para. 36 of the decision).
Thus, HMRC's appeal succeeded and standard-rating applied.
This decision follows R & C Commrs v Pinevale Ltd [2014] BVC 517, which involved a supply of roofing panels in conservatories. The UT upheld the refusal of reduced-rating and distinguished between (1) materials used when building a new roof and (2) those used for insulating an existing roof. The words used in adverts should be carefully chosen, as HMRC can use them as evidence of the nature of a supply. This case illustrates the difficulties of deciding whether a transaction with various elements amounts to a single supply or multiple supplies. Different minds may reach different conclusions.
[1] HMRC appeal against a decision of the First-tier Tribunal (“FTT”) released on 13 December 2016. In that decision, the FTT (Judge Thomas) allowed the appeal by Wetheralds Construction Limited (“Wetheralds”) against the decision of HMRC that its supplies of the “Solid Roof System” did not qualify for the reduced rate of VAT under Group 2 of Schedule 7A to the Value Added Tax Act 1994 (“VATA 1994”).
[2] HMRC put their case on this appeal on two grounds. The first was that the FTT had erred in its application of the decision in R & C Commrs v Pinevale Ltd [2014] BVC 517 (“Pinevale”). The second was that the FTT had erred in its application of the relevant principles in determining whether the supply in question was a single supply and, if so, the nature of the supply. Judge Thomas gave permission to appeal on the first ground but refused it on the second. The Upper Tribunal gave permission to appeal on the second ground.
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