Taxation – VAT – Reduced rate – Appellant company supplying and fitting insulated roof panels to customers’ conservatories – First-tier Tribunal holding supplies subject to VAT at standard rate – Appellant appealing – Whether supplies eligible for reduced rate of VAT as supplies of services of installing energy-saving materials within note 1(a) to Schedule 7A to Value Added Tax Act 1994 – Appeal dismissed
The appellant company supplied and fitted insulated roof panels which were fitted onto their customers’ pre-existing conservatory roofs. The panels were not self-supporting and could be used only if the customer already had an existing conservatory roof structure. Moreover, it was common ground that it was important that the installation of the panels disturbed as little as possible of a customer’s pre-existing roof structure after the removal of the existing panels in order to prevent leaks.
By section 29A of the Value Added Tax Act 1994, a reduced 5% rate of VAT was charged on any supplies of a description specified in group 2 of schedule 7A to the 1994 Act, which included supplies of services of installing energy-saving materials in residential accommodation. Note 1(a) to group 2 defined “energy-saving materials” as insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings.
A question arose whether the supply of the panels was subject to a reduced rate of VAT on the basis that it was a supply of insulation for roofs, or whether it was subject to the standard rate of VAT as a supply of a conservatory roof itself. The respondent commissioners assessed the appellant to VAT on the basis that the supplies were standard-rated. The First-tier Tribunal (FTT) upheld that decision: [2020] UKFTT 349.
The appellant appealed arguing that the FTT had failed to apply the legislation correctly, having regard to the relevant authorities.
Held: The appeal was dismissed.
(1) The statutory question was whether a particular supply was “insulation for… roofs” and in determining that question the tribunal had to follow the decision of the Upper Tribunal in HMRC v Pinevale [2014] UKUT 204 (TCC); [2014] PLSCS 192 and draw a distinction between a supply of “insulation… for roofs” (which was subject to the reduced 5% rate of VAT) and a supply of a “roof” itself, which was standard-rated for VAT purposes. Considerations of the “extent” of a supply could, in principle help the FTT to determine whether a particular supply was of either a roof or of insulation for a roof.
The question whether an item was “insulation for” a roof was not determined conclusively by considering whether it was “attached or applied” to the roof. Nor was it determined conclusively by asking whether the item was a “roof panel”. Evidence of extraneous materials such as patents, local authority building certificates and marketing literature might be of relevance in particular cases. But it was a matter for the FTT to assess the relevance and weight of such material: HMRC v Wetheralds Construction Ltd [2018] UKUT 173 (TCC); [2018] PLSCS 102 applied.
(2) The FTT’s task in this appeal was evaluative. Such evaluative questions frequently arose in VAT disputes given that superficially similar supplies could be treated very differently for VAT purposes. It was a judgment of mixed fact and law which was pre-eminently for the specialist tribunal entrusted by parliament with the task of fact finding and with using its expertise to make the first level decision, subject only to appeal on points of law.
For such an appeal to succeed it had to be established that the tribunal’s decision was wrong as a matter of law. The Upper Tribunal was not entitled to interfere with the FTT’s evaluation of the primary facts in the absence of some error of principle: an untenable view of the legislation or a plain misapplication of the law to the facts.
Since note 1(a) set out an exception to the usual scheme of VAT by applying a reduced rate, the scope of that exception had to be construed “strictly”, by analogy with the approach taken to the construction of provisions that conferred a VAT exemption. Accordingly, the appellant was entitled to the benefit of the reduced rate only if it could establish that its supplies fell within a fair interpretation of the words of note 1(a) having due regard to the objectives that were pursued by the presence of that exception. However, that did not mean that the tribunal should construe note 1(a) restrictively. If the appellant’s supplies fell within a fair interpretation of note 1, it was not to be denied the benefit of the exception because it was capable of another, more restricted: Expert Witness Institute v HMRC [2001] EWCA Civ 1882 considered.
(3) Although Pinevale and Wetheralds established a difference between a supply of a roof and of insulation for a roof, neither set out any mandatory process that an FTT had to follow in order to determine the nature of a supply in any particular case. Nor did note 1(a) in terms require any analysis of whether what was supplied was a “new roof” or merely an “alteration” to an existing roof.
In the present case, the FTT was not obliged to look at a customer’s roof before the appellant’s works, compare it with the roof after the works and then ask the question whether the appellant had carried out “alterations” deciding that question by reference to a sliding scale. Rather, the FTT was entitled, as it had, to focus on what the appellant actually provided, namely panels which, in most cases, constituted the majority of the surface area of a conservatory roof, together with the service of installing those panels. Furthermore, the FTT was entitled to consider the panels and their installation and ask itself whether the overall supply of panels involved the appellant in supplying a roof or insulation for a roof.
The FTT had before it all the evidence. It had seen videos of the installation process. Reading the decision as a whole, the FTT clearly treated the panels’ insulating properties as relevant to its overall evaluation. Its conclusion that the structure in question was not a roof formed part of that overall evaluation and involved no error of law: Coleborne (T) & Sons Ltd v Blond [1951] 1 KB 43 and Customs & Excise Commissioners v Marchday Holdings Ltd [1996] EWCA Civ 1171; [1996] EGCS 204 considered.
Hui Ling McCarthy QC and Edward Hellier (instructed by Mazars LLP) appeared for the appellant; Joanna Vicary (instructed by the General Counsel and Solicitor for Her Majesty’s Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Greenspace Ltd v Commissioners of HM Revenue and Customs
