VAT bill goes through the Roof

A roof replacement company has been hit with a £2.5 million VAT bill after a ruling that the insulated roof panels it supplied did not qualify for the ‘Reduced Rate’ of VAT.

If you are a supplier of materials or contracting services – then clearly it is important to ensure that you apply the correct rate of VAT as will be seen below.

However, it is also important from the customer’s perspective.

Clearly members of the public do not want to be charged VAT unnecessarily, but it could be equally important for developers and individuals creating new ‘Dwellings’ via the DIY Housebuilder’s Scheme. This is because in instances where VAT is charged at the wrong rate or charged when it shouldn’t be then HMRC can deny the recovery of that VAT potentially transferring risk from the supplier to the customer.

Unfortunately the Argument did not “Hold Water” because the Roof did !

In the case at hand Greenspace Ltd supplied roofing panels to residential customers to be fitted onto existing conservatory roofs,

The supply was treated by Greenspace Ltd as being ‘Energy Saving Materials’.

The case made its way through the First Tier Tribunal, the Upper Tribunal and finally the Court of Appeal.

Greenspace Limited has argued that the supply was one of insulation for the roof which would qualify for the ‘Reduced Rate’.

Unfortunately for the taxpayer although the Court of Appeal agreed that the tiles did have an insulating property they also found that the supply was more than just for insulation it was in fact the installation of a brand new roof (or part of a roof).

In other words, the tiles had more of a function than just insulation they also protected the conservatories from the outside elements.

As the conservatories were part of existing buildings then it was deemed that VAT at the ‘Standard Rate’ of VAT should be applied.

It is suggested that where any business seeks to apply a VAT relief to the majority of their supplies they should be absolutely certain that their argument “holds water”.

As can be seen from this case – even where the materials applied can be said to have an insulating property this was not sufficient to describe the supply as one of “insulation”.

Advice therefore needs to be sought as to whether an alternative analysis provides risk of challenge- particularly if the application of the wrong rate of VAT could put the ongoing viability of the business at risk (as may well be the case if HMRC assess for four years’ worth of incorrectly charged VAT).

Developers of property also need to take advice to ensure that where they are charged VAT it is at the correct rate.

Need advice on VAT matters? Contact us today.

Posted in Blog.