HMRC looks set to change its guidance after a property developer won a case at a First Tier tribunal (FTT) challenging the VAT rating for window blinds installed in new homes
Wickford Development Co Ltd was appealing against two VAT assessments, one for £35,826 and the second for £6,625.
[Wickford Development Co Ltd and the Commissioners for Her Majesty’s Revenue and Customs, [2020] UKFTT 387].
Wickford is currently building a 1,600-home housing estate at Great Dunmow in Essex. It has installed bespoke, fitted, manually operated blinds to all the windows in the homes it constructed, apart from on the externally opening patio doors, where it installed curtains and poles. The blinds are individually measured to precision and fitted by a skilled subcontractor, using specialist tools and proprietary fittings.
While building materials bought alone are subject to VAT, the sale of new homes, and the construction services supplied in building them, are zero-rated for VAT purposes.
Building materials used in the construction of a new dwelling are included in this zero-rated supply provided they are ‘ordinarily incorporated’ into the new home by the builder.
The company sought to recover VAT it had paid on buying the blinds, arguing that they were part of the zero-rated supply of the new homes, but HMRC disagreed.
Up till now HMRC’s guidance stated that housebuilders may recover VAT on curtain poles but not on blinds. In 2011, the tribunal decided in the John Price case that VAT was recoverable on blinds, but HMRC issued a brief stating that it disagreed with this finding and would not be changing its policy.
At the FTT, the company explained Wickford’s marketing ploy is an all-inclusive specification which is not subject to any additional uplift. Blinds are fitted ordinarily across all house types, and no differentiation is shown to house type or asking price of the property.
The tribunal heard evidence that the blinds, along with their fixings, were installed as one unit and were not easily removable. If they were to be removed, this would damage the UPVC window frames, and the plaster within the window reveals, which would both need extensive repairs. Therefore, they had been ‘incorporated’ into the building.
Wickford also argued the use of blinds in new-build residential properties is already ‘ordinary’ and increasingly prevalent. At the hearing, the company gave evidence that that it had installed blinds as standard in all of its homes since 2015, and produced press articles and marketing brochures of its competitors to show how common the installation of blinds had become in new homes in the UK.
The FTT judge agreed with Wickford’s representative that ‘[i]f the goods being assessed were window dressings/coverings, then HMRC’s illogical distinction in its guidance between curtain poles and blinds is wholly unjustifiable.
‘Given the level of incorporation required, it is much more logical to align blinds with curtain poles and rails, rather than with curtains themselves, which are easily attached and detached from the pole or rail.’
In conclusion, the judge found that ‘manual window blinds are goods of a description ordinarily incorporated by builders in properties built as single family dwellings.’
As they do not fall within any of the exemptions, they are therefore to be zero-rated for VAT purposes.
The judge also stated: ‘HMRC’s view on the matter, expressed in Customs Brief 02/11, is irreconcilable with these conclusions and is incorrect.’
Commenting on the FTT's findings, Sarah Halsted, national VAT technical officer, RSM, said: This is an important decision as it contradicts HMRC’s guidance on the matter and specifically states that the published policy is incorrect.
‘Developers who have not recovered input tax on manually operated blinds installed in new homes should quantify VAT they may have overpaid in the last four years and consider making a protective claim. The Wickford case has shown that this can add up to a considerable amount over time, even for small- and medium-sized developers.
‘This case has also shone a light on HMRC’s view of which items are or aren’t ordinarily installed in new houses, which often lags behind or ignores the developing industry standard. Wickford’s victory may inspire challenges in respect of other goods.’
However, RSM pointed out the tribunal has limited the decision to manually operated blinds. It had been decided in previous cases that VAT cannot be recovered on automatic electric blinds because they are electrical appliances and their installation is relatively unusual in new homes.
An HMRC spokesperson said: ‘HMRC accepts that the judgement in the case of Wickford Development Co Ltd impacts our policy and we are reviewing our position regarding the installation of fitted blinds. Guidance will be updated as necessary.’
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