Fit for business?
Last week, the First-tier Tribunal (FTT) delivered an interesting decision on the VAT treatment of fitting services in the flooring retail sector. In the case United Carpets (UC) were able to successfully challenge HMRC’s assessment that it should account for VAT on fitting fees charged by independent, self-employed fitters introduced to customers.
Background and Issues:
UC is a retailer of flooring and customers purchasing flooring are offered the option to be introduced to independent, self-employed fitters for installation.
HMRC assessed UC for output tax on the basis that it made a single supply of both flooring and fitting services, contending that the fitters acted as subcontractors for UC.
UC argued that the fitters were independent, that fitting services were supplied directly by the fitters to customers, and that there were two separate supplies: one of goods (flooring) by the UC, and one of services (fitting) by the fitter.
The FTT adopted a three-stage approach:
First, they looked at the contract to understand what each party had agreed to do.
Then, they checked whether those terms actually reflected how things worked in practice.
Finally, based on both the legal terms and the real-world setup, they decided who was actually supplying the fitting services for VAT purposes.
Key takeaways:
The Tribunal found that UC role was limited to introducing customers to independent fitters. The contractual and economic reality was that fitting services were supplied by the fitters, not by UC.
Payments for fitting were made directly from customer to fitter, with no economic benefit or liability for fitting services accruing to UC.
The Tribunal’s analysis followed established VAT principles, confirming that where a retailer merely introduces a contractor and does not supply or receive payment for the service, there are two separate supplies for VAT purposes.
It’s worth noting that this ruling was made at the FTT level, so it doesn’t carry binding legal authority beyond this specific case. Nonetheless, it holds persuasive value, and if confirmed by the Upper Tribunal, it could establish a precedent and serve as a model for retailers across the industry.
