Taylor Wimpey (TW) claimed a refund of input VAT paid on appliances and carpets (the goods) which it had installed in new homes since 1973. TW’s recovery of the VAT paid was denied through an industry specific piece of legislation colloquially known as the ‘builder’s block’. TW considered that the legislation could be interpreted in a way which enabled input tax recovery alternatively, and that the legislation was enacted in a way which was not compatible with EU law. This is the basis of the appeal before the First-tier Tribunal (FTT) (see Taylor Wimpey v HMRC [2014] UKFTT 575 (TC)).
The FTT had to consider whether TW was able to recover the VAT on the basis that:
the goods were not fixtures and therefore not ‘incorporated’ within the new house; or
if the goods were ‘incorporated’, they were ‘of a kind ordinarily installed by builders’ and therefore excepted from the builder’s block;
alternatively, the builder’s block was unlawful and breached EU law to the extent that it was later extended to include additional items.
The FTT found against TW on the first and second points; Judge Mosedale held that the word ‘incorporated’ had to be given a meaning which was compliant with parliament’s intention in enacting the builders’ block. Accordingly, all goods became incorporated within a building regardless of the level of physical attachment. In respect of the second point, the judge held that the evidence was not sufficient to prove that the goods at issue were ordinarily installed during the relevant time periods.
In respect of the EU law point, the judge held that the builder’s block was ‘probably’ unlawful in its entirety. In rejecting TW’s argument that the builder’s block was unlawfully extended by HMRC from 1990, the judge preferred a more fundamental approach; article 28(2)(a) of the Sixth Directive was the vires for the maintenance of exemption with a refund. This manifests in the UK as a zero rate of VAT. However, where a tax authority has enacted an exemption without a refund (i.e. as is the case with the builder’s block), the effect is an exemption from VAT which was not permitted by article 28(2)(a).
Having concluded that the builder’s block was therefore ‘probably’ illegal, the focus of the case now shifts on to the effect of that on TW’s claim. Whilst TW can invoke its directly effective right to recover input tax illegally blocked, the judge has asked for further submissions on whether this gives rise to an output tax liability. This itself begs the question as to whether, if there is an output tax liability, it is one which can be set off against the claim for input tax.
These questions engage a number of recent UK and CJEU cases which are outside the scope of this update. The next steps in this case will be intriguing and are potentially wide ranging, to say the least.
The author’s firm acted for the appellant in this case
Home >Articles > Taylor Wimpey: builder’s block probably unlawful
Taylor Wimpey: builder’s block probably unlawful
David Anderson reports on Taylor Wimpey
Taylor Wimpey (TW) claimed a refund of input VAT paid on appliances and carpets (the goods) which it had installed in new homes since 1973. TW’s recovery of the VAT paid was denied through an industry specific piece of legislation colloquially known as the ‘builder’s block’. TW considered that the legislation could be interpreted in a way which enabled input tax recovery alternatively, and that the legislation was enacted in a way which was not compatible with EU law. This is the basis of the appeal before the First-tier Tribunal (FTT) (see Taylor Wimpey v HMRC [2014] UKFTT 575 (TC)).
The FTT had to consider whether TW was able to recover the VAT on the basis that:
the goods were not fixtures and therefore not ‘incorporated’ within the new house; or
if the goods were ‘incorporated’, they were ‘of a kind ordinarily installed by builders’ and therefore excepted from the builder’s block;
alternatively, the builder’s block was unlawful and breached EU law to the extent that it was later extended to include additional items.
The FTT found against TW on the first and second points; Judge Mosedale held that the word ‘incorporated’ had to be given a meaning which was compliant with parliament’s intention in enacting the builders’ block. Accordingly, all goods became incorporated within a building regardless of the level of physical attachment. In respect of the second point, the judge held that the evidence was not sufficient to prove that the goods at issue were ordinarily installed during the relevant time periods.
In respect of the EU law point, the judge held that the builder’s block was ‘probably’ unlawful in its entirety. In rejecting TW’s argument that the builder’s block was unlawfully extended by HMRC from 1990, the judge preferred a more fundamental approach; article 28(2)(a) of the Sixth Directive was the vires for the maintenance of exemption with a refund. This manifests in the UK as a zero rate of VAT. However, where a tax authority has enacted an exemption without a refund (i.e. as is the case with the builder’s block), the effect is an exemption from VAT which was not permitted by article 28(2)(a).
Having concluded that the builder’s block was therefore ‘probably’ illegal, the focus of the case now shifts on to the effect of that on TW’s claim. Whilst TW can invoke its directly effective right to recover input tax illegally blocked, the judge has asked for further submissions on whether this gives rise to an output tax liability. This itself begs the question as to whether, if there is an output tax liability, it is one which can be set off against the claim for input tax.
These questions engage a number of recent UK and CJEU cases which are outside the scope of this update. The next steps in this case will be intriguing and are potentially wide ranging, to say the least.
The author’s firm acted for the appellant in this case
