Taxation – VAT – Reduced rate – Appellant company supplying and fitting insulated roof panels to conservatories – First-tier Tribunal holding supplies subject to VAT at standard rate – Upper Tribunal upholding decision – 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 Upper Tribunal dismissed an appeal against that decision: [2021] UKUT 290 (TCC); [2021] PLSCS 200. The appellant appealed.
Held: The appeal was dismissed.
(1) Items 1 and 2 of note 1 referred to “energy-saving materials” which bore their ordinary meaning. Note 1(a) applied only to insulation for any one of the various items listed. Note 1(b) adopted a similar approach, applying the reduced rate only to draught stripping for windows and doors. A contrast was to be drawn between note 1(a) and (b) (and possibly (c) and (d) which related to controls on central heating systems and hot water systems), which identified items which were typically attached or additional to a larger thing, and (e) to (k) which specified particular products such as solar panels and wind turbines, which were not identified by reference to any other thing.
The limitation on the content of note 1(a) and (b) was deliberate and indicated that it was only insulation in note 1(a) or draught stripping in note 1(b) for the things specified which were within the reduced rate.
It was to be inferred that the purpose of note 1 was simply to list those supplies of energy saving materials which benefited from the reduced rate. It could not be extended beyond its plain words. The note represented a legislative choice about where to draw the boundary between supplies at the reduced rate and supplies at the standard rate. There might be fine distinctions between supplies which fell on each side of the line. There might well be supplies which had energy-saving qualities which fell outside the reduced rate.
(2) The question posed by note 1(a) was whether supplies were “insulation for roofs” using those words in their ordinary sense, applied strictly but not restrictively. If the supply in question was of something more than or different from insulation for roofs, it would fall outside note 1(a) and the reduced rate would not apply. The application of that test to the facts was an essentially evaluative exercise. The FTT had to consider all the evidence and apply the law, properly construed, to determine whether note 1 applied. What evidence the FTT permitted to be adduced before it, and what weight it gave to what parts of that evidence, was a matter for the tribunal.
The decisions in HMRC v Pinevale [2014] UKUT 204 (TCC); [2014] PLSCS 192 and HMRC v Wetheralds Construction Ltd [2018] UKUT 173 (TCC); [2018] PLSCS 102 had been understood to lay down a test for the application of note 1. However, that test went too far in suggesting a binary choice between “insulation for roofs” on the one hand and “a roof” on the other. The true test asked only whether the supply was of insulation for roofs. There was no sliding scale, nor any need to distinguish between insulation for a roof as opposed to insulation “to” or “of” a roof. It was not part of the test that there should be a pre-existing roof.
(3) The FTT posed the right question in asking whether it was a fair interpretation of the words “insulation for roofs” to include the type of roofing panels supplied by the appellant. But it went wrong in answering that question by reference to a distinction between something which was “for a roof” and something which was “a roof”. The FTT’s conclusion that the appellant’s supplies were “of a roof” could not stand because that conclusion, which was of mixed fact and law, was infected by the error of law: the FTT constrained itself to find that the supplies, if not of insulation for roofs, must have been a roof. That was a material error.
(4) CPR 52.21(3) provided that an appeal would be allowed where the decision of the lower court or tribunal was wrong or unjust because of a serious procedural or other irregularity in the proceedings.
Although the FTT had made a material error in the test of law applied, once that error was corrected and the true test was applied to the facts, the only possible answer was that the appellant’s supplies were not of insulation for roofs. The primary facts were not in dispute. The unavoidable inference was that the appellant’s panels did provide insulation for the conservatory on which they were installed but they also protected the conservatory from the outside elements. Those two characteristics were fundamental aspects of the product and meant that the supplies fell outside note 1(a). The FTT was not wrong to dismiss the appeal.
Although it might be said that the application of the wrong legal test was an irregularity (although not a procedural irregularity), that had not led to any injustice, because the appeal was destined for dismissal on the basis of the correct legal test.
Edward Hellier (instructed by Direct Access) appeared for the appellant; Joanna Vicary (instructed by HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
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