Taylor Wimpey Plc v Revenue and Customs Commissioners
Jurisdiction | UK Non-devolved |
Judgment Date | 08 February 2017 |
Neutral Citation | [2017] UKUT 34 (TCC) |
Date | 08 February 2017 |
Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0034 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Warren, Judge Roger Berner
Jonathan Peacock QC and James Rivett, instructed by PricewaterhouseCoopers LLP, appeared for the appellant
Andrew Macnab and Ewan West, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Builder's Block restricting deduction of input tax for certain items on a supply of a new dwelling – Whether block, or further restrictions from 1984 and 1987, unlawful under European Union (EU) law – Meaning of incorporates … in any part of the building or its site – Meaning of ordinarily installed by builders as fixtures.
The Upper Tribunal (UT) largely dismissed the company's appeal against the decisions of the First-tier Tribunal (FTT) ([2014] TC 03700 and [2015] TC 04281) to uphold the block on input tax on certain goods not ordinarily installed by housebuilders. The block was challenged on the basis that the UK may not extend blocks on input tax.
A new-build house is zero-rated, with value added tax (VAT) recovery on associated costs, except those covered by the “Builders Block” (“the Block”) by virtue of being incorporated into the building. This typically includes ovens, washing machines, hobs, etc. (“white goods”) not considered fixtures ordinarily installed by builders. The appellant company submitted a “Fleming” claim for white goods for periods from 1973 to 1997, which HM Revenue & Customs (“HMRC”) refused and a subsequent appeal was dismissed at the FTT.
The appellant argued that the items concerned where not incorporated using the English land law meaning of “fixtures” or that they were fixtures of a kind ordinarily installed by builders. In addition where the Block applied it was not lawful under European Community (EC) law.
The Block was introduced by the Input Tax (Exceptions) (No. 1) Order 1972 (SI 1972/1165) covering items incorporated into a building other than materials, builder's hardware, sanitary ware or other articles “ordinarily installed by builders as fixtures”. Subsequent versions carried similar text, although there were additions in the 1984 and 1987 versions. These changes were then incorporated into the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222). In respect of the zero-rating of new-build housing, the Value Added Tax (Construction of Buildings) Order 1995 (SI 1995/280) introduced a change to the Value Added Tax Act 1994 (VATA 1994), Sch. 8, Grp. 5, note (22) explaining what is covered by the term “building materials” and importantly what is not.
The FTT had found that, under UK law, the Block applied and the appellant's claim failed. However, the FTT found that, under EU law, the Block was “probably not authorised”. This led to a position where if the appellant relied on EU law it could recover VAT as input tax, but would have to charge output tax on the goods in question (Minister Finansów v MDDP sp z oo Akademia Biznesu, sp komandytowa (Case C-319/12) [2014] BVC 11).
The UT firstly considered whether the Block was lawful under EU law. The appellant argued that the changes in 1984 and 1987 blocking VAT on fitted furniture and carpets was unlawful under EU law. The UT looked at the effect of the Sixth Directive, art. 17(6) in Magoora sp zoo v Dyrektor Izby Skarbowej w Krakowie (Case C-414/07) [2011] BVC 325. This considered whether art. 17(2) and (6) stopped a member state from repealing original restrictions, in this case on recovery of VAT on fuel and replacing them with new criteria. The Court confirmed that member states had a right to retain national exclusions in place before the Sixth Directive came into force. Also, member states were entitled to reduce exemptions as long as the end was to bring domestic law into line with the aims of the Sixth Directive. The UT found that art. 17 of the Second Directive and subsequently art. 28(2)(a) of the Sixth Directive derogated to the UK the right to introduce and maintain the Block as part of the transition to a VAT system and within the zero-rating approach to new-builds (see para. 84). This included the 1984 and 1987 changes. The UT also held that there was no need for a referral to the European Court of Justice (ECJ).
The UT concluded that the test for the term “incorporated” is not a definition in English land law as per the appellant's argument, or whether it falls as part of a single zero-rated supply, but rather if it is a fixture and also if installed as a fitting. Items simply plugged-in were not fixtures, but items that required some sort of fitting other than temporary were deemed to be installed as a fitting (see para. 111). The UT agreed with the FTT that white goods as in the claim were not fixtures and were blocked. The UT disagreed with the FTT's view that fitted carpets were fixtures and as such not blocked. The FTT had incorrectly gone against the Court of Appeal decision in Botham v TSB Bank plc (1997) P & CR D1, in which items including ovens, dishwashers and fitted carpets were deemed not to be fixtures.
The UT concluded that the use of a comparator is the best test for the term “ordinarily installed as fixtures” and has been used in tribunals such as McCarthy Stone plc No 7752 [1992] BVC 897. Using a purposive test as to what Parliament intended with the legislation, it said that a like-for-like approach should be taken, so flats would be compared with flats, single dwellings with single dwellings, etc. although it agreed with the FTT in rejecting the approach of the tribunal in Rainbow Pools London Ltd [2009] BVC 4,021 that sought to categorise dwellings by luxury status.
A number of issues remained, including how items that were not fixtures, but installed as fittings, and other issues specific to the claim and the UT left the parties to reach agreement with recourse to the UT if necessary.
This is an important decision for housebuilders and HMRC given the significant sums involved. The UT has provided further guidance to clarify the meaning of what is covered by the Builders Block and confirmed that the Block is lawful under EU law. However, until all outstanding matters are agreed or otherwise, the UT has as yet given no determination as to whether there is room for the appellant to appeal the decision.
[1] These are the appeals of Taylor Wimpey Plc (“Taylor Wimpey”) against two decisions of the First-tier Tribunal (“the FTT”) (Judge Mosedale) which were released respectively on 12 June 2014 (“the First FTT Decision”) and 12 February 2015 (“the Second FTT Decision”).
[2] The decisions concerned claims made by Taylor Wimpey, as representative member of its VAT group, for recovery of input tax incurred by Taylor Wimpey or members of the group during the period between 1 April 1973 and 30 April 1997 (“the Claim Period”). The claims related to the installation in new-built homes of (i) built-in ovens, (ii) surface hobs, (iii) extractor hoods, (iv) washing machines, (v) microwave ovens, (vi) dishwashers, (vii) washer driers, (viii) tumble driers, (ix) refrigerators, (x) freezers, (xi) fridge freezers and (xii) carpets and carpeting materials (“the Claim Items”). The claim is a Fleming claim, made on 30 March 2009, within the extended transitional limitation period for historic claims provided for by s 121 of the Finance Act 2008, following the decision of the House of Lords in Fleming (t/a Bodycraft) v R & C Commrs; Conde Nast Publications Ltd v R & C Commrs [2008] BVC 221.
[3] The amount of the claim is substantial. As things currently stand, the aggregate amount of input tax claimed is £51,179,177.59.
[4] Taylor Wimpey's claim raises issues of domestic and EU law, as well as factual issues. It concerns the effect, or effectiveness, of UK legislation, described as the Builder's Block, under which, in various legislative forms, input tax which would otherwise be deductible in respect of expenditure on goods incorporated in a new dwelling which is supplied by way of a zero-rated supply is rendered non-deductible.
[5] The block, which was first introduced by the Input Tax (Exceptions) (No 1) Order 1972, with effect from 1 April 1973, applies only to goods which are incorporated into any part of the building or its site. It excludes (and so allows recovery of input tax in these respects) certain items, namely materials, builders' hardware, sanitary ware and other articles of a kind ordinarily installed by builders as fixtures (or, since 1 March 1995, ordinarily incorporated by builders in the building or site). But as a result of legislative changes, there have been introduced successive exceptions to those exclusions, thus blocking input tax recovery on certain specific classes of goods incorporated in the building, even where they are ordinarily installed as fixtures, or ordinarily incorporated in the building or site.
[6] Thus, from 1 June 1984, by virtue of article 2 of the Value Added Tax (Special Provisions) (Amendment) (No 2) Order 1984 (“the 1984 Order”), input tax was specifically blocked in relation to (a) finished or prefabricated furniture, other than furniture designed to be fitted in kitchens, (b) materials for the construction of fitted furniture, other than kitchen furniture, and (c) domestic electrical or gas appliances, other than those designed to provide space heating or water heating or both. From 21 May 1987, by the Value Added Tax (Construction of Buildings) Order 1987 and its replacement, the identical Value Added Tax (Construction of Buildings) (No 2) Order (taken together “the 1987 Order”), a further specific block was introduced, this time for carpets or carpeting materials.
[7] The legislation changed again with effect from 1 March 1995. The Builder's Block continued to apply to goods incorporated in any part of a building as described in the zero-rating schedule (Schedule 8 to the Value Added Tax Act 1994 (“VAT...
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