House builders — Wardrobes built into new houses — Whether builders can reclaim input tax on materials used in construction of wardrobes — High Court upholding decision of VAT Tribunal that builders entitled to reclaim input tax
The taxpayer company was a house-building subsidiary of Tarmac plc. It built about 750 houses each year, with built-in wardrobes to standard designs. The wardrobes were formed on two sides by the walls of the house and on the third side by a portion of wall whose only purpose was to separate the wardrobe from the room it served. The skirting boards, architraves and frames on which the wardrobe doors were hung were fitted to the walls. All the wardrobes were fitted with a shelf with a hanging rail attached to its underside.
The company reclaimed input tax on the materials used in constructing the wardrobes. They also claimed credit for input tax on the mirror doors, tracks and hanging shelves. The commissioners raised assessments to recover the deductions made in respect of all the materials.
The general rule in section 14 of the Value Added Tax Act 1983 that a taxable person might deduct his input tax, was restricted by article 8 of the Value Added Tax (Special Provisions) Order 1981. The effect of article 8 was that credit for input tax on the disputed materials might only be claimed if they were neither finished or prefabricated furniture nor materials for the construction of such furniture. A VAT Tribunal found in favour of the company that neither the wardrobes nor the materials came within article 8. The Commissioners appealed.
Held The appeal was dismissed.
1. Article 8 was applied to speculative builders to establish equality between those who purchased a house already fitted out on which no VAT was payable and those who fitted out a house themselves paying VAT on fixtures. The article had been amended in 1984 because of the increase in the range of items ordinarily installed by builders.
2. Whether wardrobes were furniture was a question of fact. Furniture was an ordinary English word to be given its popular meaning: see Gray v Fidler [1943] KB 694; Palser v Grinling [1948] AC 291; F Austen (Leyton) Ltd v Commissioners of Customs and Excise [1968] Ch 529.
3. The meaning of fitted furniture was therefore a matter of fact for the tribunal, which had used the correct approach in looking at the finished product and decided that the wardrobes were not furniture. The wardrobes, in this case, were not units of furniture which could be taken away and installed somewhere else. It could not be said that the tribunal had reached an unreasonable conclusion.
Andrew Park QC and Roderick Cordara (instructed by the solicitor to Mclean Homes Midlands Ltd) appeared for the respondent tax payer; Stephen Richards (instructed by the solicitor to Customs & Excise) appeared for the commissioners.
