Taylor Wimpey – Upper Tribunal clarifies the application of the 'builder's block' scheme

In Taylor Wimpey Plc v HMRC [2018] UKUT 55, the Upper Tribunal (UT) has allowed, in part, the taxpayer's appeal in relation to its claim to recover input VAT incurred on the provision of certain white goods, kitchen appliances and carpets installed in newly built properties.

Background

Taylor Wimpey Plc (the taxpayer) was the representative member of a large construction group. It submitted claims to HMRC for recovery of historic input tax amounting to over £51m incurred between April 1973 and April 1997, in relation to the installation of various items in newly built properties, including ovens, surface hobs, extractor hoods, washing machines, microwaves, dishwashers, refrigerators, freezers and carpets. The claims were Fleming claims, made within the extended transitional limitation period for historic claims provided for by section  121, Finance Act 2008, following the decision of the House of Lords in Fleming (trading as Bodycraft) v Revenue and Customs Commissioners; Condé Nast Publications Ltd v Revenue and Customs Commissioners [2008] STC 324.

HMRC denied the taxpayer's claims on the basis the items fell within the scope of the builder’s block, which was introduced by Input Tax (Exceptions) No 1 Order (SI 1972/1165, article 3), so that any input incurred on these items was not recoverable. The builder's block excludes the recovery of input tax on appliances installed by property developers.

The taxpayer contended that the builder's block was unlawful under EU law and that as the relevant items were not 'incorporated' into the building, the builder's block did not apply.  Alternatively, it argued that the goods were 'ordinarily installed as fixtures'.   

The taxpayer's appeal to the First-tier Tribunal was unsuccessful and it appealed to the UT.

The UT held that the builder's block was not unlawful under EU law and adjourned the hearing to allow the parties to agree the extent of the claim that related to goods that were not fixtures in light of the guidance it had provided.  As the parties could not agree, the case was referred back to the UT to determine the outstanding issues.   

UT decision

The parties had adopted different views of the UT's formulation of the test and the UT was required to apply its test to various kitchen appliances. In particular, it had to decide whether certain items, which were not fixtures, were nonetheless fittings and incorporated.

The UT found that all items under consideration were either fixtures or installed fittings, and were therefore incorporated into the buildings for the purpose of the builder's block. Only extractor hoods installed between 1 January 1982 and 1 June 1984, were "ordinarily installed" as fixtures and, therefore, fell within an exclusion from the application of the builder's block.  

The UT clarified guidance provided in its earlier decision and confirmed that incorporation does not require an item to be integrated.  Items may be free standing but nonetheless be installed fittings because they can reasonably be expected not to be moved on a regular basis.    

The UT also considered the issue of offset, which was of academic interest only given its decision on the incorporation issue.  The UT concluded that if the items were not incorporated into the buildings and were the subject of a separate standard-rated supply, sections 81(3) and (3A), VATA 1994, would apply to set the amount of output tax on the standard-rated supply, for which the taxpayer was liable, against the amount of input tax due from HRMC, notwithstanding that HMRC was time-barred from pursuing the amount due.  

Comment

Although this case was decided on its own facts, the UT has provided  some helpful guidance on the test to be applied when deciding whether goods have been incorporated into a building and are therefore within the scope of the builder's block.  Although this decision does appear to have widened the scope of the builder's block, given the sum in dispute, it would not be surprising if the taxpayer sought to appeal the decision to the Court of Appeal.  

A copy of the decision can be viewed here.