Following an appeal against assessments issued by HMRC under the Value Added Taxes Act 1994, retailer Tapi has been found not liable for VAT payments totalling £13,555,315, which HMRC contended was due on the supply of flooring fitting services to Tapi’s customers from 2019-23.
During the relevant period, when a customer purchased a floorcovering from Tapi, the customer had a choice of fitting the covering or arrange the fitting themselves, or purchasing a floorcovering fitting arrangement service from Tapi for a specified fee. In the latter instance, Tapi arranged for a fitter, who was wholly independent of Tapi but from a 'pool' of fitters vetted by the retailer, to attend the customer’s premises to perform the fitting, and the customer paid the fitting fee.
Tapi says it accounted for VAT on the basis that where it provided the fitting arrangement service, it acted as a 'disclosed agent' for the customer in relation to arranging the service, which was supplied by the fitter as the principal.
Tapi charged VAT on the arrangement fee at the standard rate, but many of the fitters were not registered for VAT and did not charge VAT on the fitting fees which they received from the customers. HMRC made its assessment on the basis that, in its view, under a form of sub-contracting arrangement, the fitters supplied the fitting services to Tapi and, as principal, Tapi made an onward supply of the services to customers. Accordingly, in HMRC’s view, Tapi should have accounted for VAT on the fitting fees received by the fitters at the standard rate.
In a small number of cases, customers specifically requested to pay Tapi direct for the fitting service when the customer entered into a contract with Tapi for the supply of flooring. In that case, Tapi says it supplied the fitting service and charged VAT on the fitting fee – yet this only applied to approximately 1.2% of the orders received.
The tribunal found that, for VAT purposes, the fitters supplied the fitting services to Tapi's customers in return for the fitting fees, so the retailer is not, therefore, liable to account for VAT on the fees received by the fitters for their services.
"Tapi plainly had a business interest in ensuring that the fitting service was performed to the customers’ satisfaction and in assisting with issues on that score," the statement reads. "Hence, it was able to dictate to some extent the terms on which, if the fitter accepted the job, the fitter would supply the fitting service, and Tapi was willing to undertake certain responsibilities."
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