VAT – Static caravan – Zero-rating – Respondent selling static caravans with all fixtures and fittings – Group 9 and Group 5 of Schedule 8 to Value Added Tax Act 1994 – Whether items standard rated as “removable contents” or zero-rated as “building materials” – Whether first-tier tribunal applying wrong test – Appeal allowed
The respondent sold static caravans, which it supplied to the purchaser with all fixtures and fittings including wardrobes, kitchen, carpets, bathroom, light fittings, and other items. The first-tier tribunal (FTT) was asked to determine whether various items commonly supplied inside the caravans fell to be zero-rated for VAT purposes along with the caravan itself, under Group 9 of Schedule 8 to the Value Added Tax Act 1994. That in turn depended on whether those items were excluded as “removable contents” by the note to Group 9 or were brought back within it as “building materials” within item 4 in Group 5, further defined in note 22 thereto. There was a list of 19 items ranging from venetian blinds to beds.
The FTT determined that some of the items were zero-rated as building materials, some were standard-rated as removable contents and that, for others, the VAT position 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.
In that regard, it construed “removable contents” as items that: (i) if removed, would leave a caravan still fit for habitation, thus excluding items such as lavatories, washbasins, kitchen sinks, wall partitions, windows, doors, lighting fixtures and items that were necessary for safety and structural suitability; and (ii) could be removed with simple tools such as a screwdriver, without causing significant damage to the structure of the caravan. It then went on to determine whether the items that it had found to be removable contents were of a kind with building materials, so as to fall within item 4, or were fitted furniture excluded by note 22(a) or (b).
On appeal against that decision, the appellants contended that the FTT had erred in applying a two-fold test of “removable contents” and also in its assessment of whether certain items were fitted furniture.
Held: The appeal was allowed.
(1) The “removable contents” of a static caravan were standard-rated unless they were goods of a kind mentioned in item 4 of Group 5, namely “building materials” as defined in note 22. If they were ordinary building materials, they were zero-rated even if they were also removable contents.
The FTT had erred in applying a two-fold test to determining whether items were “removable contents” within the note to Group 9. It was not necessary to consider whether what was left once an item had been removed was a “habitable” caravan, or how easy or difficult it was to remove the item. No one was going to remove the items from the caravan. The exercise in statutory interpretation was a theoretical one of apportioning the contents of the caravan into those which were zero-rated and those which were standard-rated. For that purpose, it was not necessary to pull apart the different elements of the statutory language and view each in isolation. Instead, it was important to look at the composite mechanism for deciding what was zero-rated and what was standard-rated. Although zero-rating applied to a caravan, in the sense of self-contained living accommodation, whether a structure met that description was to be decided not by looking just at the shell of the caravan once all the removable contents had been stripped out but by considering the unit as a whole. The note to Group 9 did not contemplate the removal of all removable contents but only those that were not also of a kind with building materials. That did not mean that all items that were of a kind with building materials were necessary in order to make a caravan into a dwelling, but the legislation operated on the basis that the caravan, together with the zero-rated building materials, comprised a caravan for the purposes of the note to Group 9.
The use of the word “removable” in relation to contents simply confirmed the distinction to be drawn between the container and its contents. Anything that was introduced into the core construction or shell of the caravan was inherently removable and thus “removable contents”. The quality of removability was inherent in the nature of the item itself and did no depend on the stage at which it was introduced into the caravan shell or on any other factor that might make it more or less difficult to remove. Thus a mirror fixed to the wall, carpets, ovens, settees, beds and kitchen work surfaces were all inherently removable contents of a caravan because they had all been incorporated into the shell of the caravan and could therefore be unincorporated or removed. There was no need to descend into greater detail as to how they were fixed to the wall, what tools would be needed to remove them or how much damage would be done to the fabric of the caravan if they were removed.
Applying the correct test, all 19 items considered in the FTT’s decision were removable contents for the purposes of Group 9.
(2) There were no grounds for interfering with the FTT’s decision as to which of those items were fitted furniture. The FTT, as the primary fact-finder, had applied a multi-factorial test and the Upper Tribunal should be slow to interfere with its conclusions on that matter. The FTT had properly considered the relevant factors identified by the authorities, namely whether an item was part of the building rather that something attached; the type of function that the item performed; the complexity and sophistication of the design or construction of the item; the fact that items that furnished a room were not necessarily “furniture”; and, finally, the impression given by looking at the items in situ: Customs and Excise Commissioners v McLean Homes Midland Ltd [1993] STC 335; [1993] EGCS 37 applied. Having applied those factors to nine different items, they had been entitled to find that three were fitted furniture and six were not.
(3) There were three items which the FTT had wrongly concluded were not removable contents, and which it had therefore determined were zero-rated without considering whether the items were ordinary building materials. The first item was the carpets, which, although incorporated into the caravan, were standard-rated since they were excluded from building materials by subpara (d) of note (22). The second was the oven and hob, which was again excluded, this time by subpara (c) of note (22), as electrical appliances not falling within subparas i) to (iv). The third was the kitchen work surface, which was incorporated into the caravan for the purposes of applying note (22) and fell within the scope of ordinary building materials, because it was furniture designed to be fitted in kitchens within the proviso to subpara (a); it was therefore zero-rated.
(4) The appeal was therefore allowed in respect of the carpet, oven and hob and those items that the FTT had held to be standard-rated only if the item were easily removable. Those items were standard-rated, regardless of how they were fixed to the wall, because they were removable contents not of a kind with building materials.
Jeremy Hyam (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Roderick Cordara QC (instructed by PWC Legal LLP) appeared for the respondent.
Sally Dobson, barrister
