[2009] UKFTT 276 (TC)

TC00222

VALUE ADDED TAX – DIY Builder’s Scheme – Appellant claimed refunds in respect of VAT incurred on supply and fit of doors and windows – such supply and fit should have been zero-rated – Appellant not entitled to refund from HMRC of VAT wrongly charged by supplier – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

                                               MICHAEL ROY CULVERWELL                             Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Ian Vellins (Judge)

                        Susan Stott FCA CTA (Member)

Sitting in public in Manchester on 11 September 2009

No appearance by on behalf of the Appellant

David Griffiths, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The appeal

1.           The Appellant appeals against the decision of the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”) to refuse the repayment of VAT to the Appellant in the sum of £826.16 in respect of two invoices for doors and windows submitted as part of a Do It Yourself (“DIY”) Builder’s Scheme claim under Section 35 of VATA 1994.

2.           The two disputed invoices related to the VAT element on an invoice from Window Mart dated 18 April 2005 and from Abbey Door Systems dated 25 May 2005.

3.           HMRC refused to pay the VAT in respect of these invoices because the supplies were supplies of goods and services which were zero-rated in accordance with Section 30 and Item 4, Group 5, Schedule 8 of VATA 1994.  Section 35 of VATA restricted refunds to where the VAT had been correctly charged on the invoices, and the suppliers of the supply and fit services were the only persons who were entitled to claim a recovery of the VAT erroneously paid on the invoices, if they were not time-barred.  The Appellant in correspondence with HMRC considered that he was being treated harshly and could not understand why it was not possible for him to obtain a refund of the VAT on the doors and windows if an error had been made by the suppliers.  HMRC contended that there was no provision in law in the VATA for HMRC to refund the VAT to the Appellant, and contended that the correct course of action would be for the Appellant to claim the VAT from the suppliers, as a civil claim.

4.           The Appellant did not appear at the hearing of this appeal.  The Appellant had written to HMRC on 13 August 2009 stating that he would not be attending at the hearing, but requested that the appeal be dealt with in his absence on the basis of the facts and arguments contained in the correspondence between himself and HMRC.  At the hearing of the appeal HMRC were represented by David Griffiths, counsel.  We agreed to proceed with the hearing of the appeal in the absence of the Appellant.  We make the following findings of fact from the facts disclosed in the correspondence between the Appellant and HMRC.

The facts

5.           In his letter to HMRC dated 13 August 2009 the Appellant stated that he had been self-employed as a bricklayer.

6.           On 30 July 2008 the Appellant completed a claim form for VAT refunds for DIY builders and convertors.  On that form he claimed in respect of a new building for his own occupation at 1A Ratby Meadow Lane, Enderby, Leicestershire, which he claimed was built between April 2006 and May 2008.  The Appellant had requested the DIY claim pack by telephone from HMRC on 6 May 2008, and the claim pack had been sent to the Appellant with public Notice 719, relating to VAT refunds for DIY builders and convertors.  The claim form submitted by the Appellant on 30 July 2008 was in respect of VAT of £4,701.09.

7.           HMRC paid the majority of the claim to the Appellant, but in particular refused to pay the two items of VAT claimed by the Appellant which are in dispute in this appeal.  HMRC noted that £699.90 VAT was being claimed by the Appellant as being VAT charged by the suppliers on the supply and installation of windows.  HMRC considered that such VAT had been incorrectly charged on the supply and installation of windows and considered that the supply should be zero-rated.  Further, VAT of £126.26 was being claimed by the Appellant, which had been incorrectly charged on the supply and installation of doors, the Respondents considering that the supply should be zero-rated.

8.           The Appellant wrote to HMRC in September 2008 stating that the VAT was charged in error on a new-build property as a company assumed that the Appellant was VAT registered and could claim it back in the normal manner.  The Appellant stated that because the invoices were over three years old the company could no longer claim the VAT back from HMRC.  The Appellant contended that rather than having to resort to the Small Claims Court against the company, it would be easier if HMRC could allow the repayment of the VAT to the Appellant, since the money had actually been paid to HMRC by the company (“the suppliers”).

9.           On 15 October 2008 HMRC wrote to the Appellant stating that the Appellant could not recover the VAT from HMRC, and suggesting that the Appellant’s remedy was against the suppliers and not against HMRC.  They pointed out that VAT overcharged by suppliers could not be recovered by the Appellant from HMRC, even if the transaction was affected by the three-year capping rule and the suppliers could no longer correct the liability, or if the suppliers were unable to do so because they were no longer in business or insolvent.  HMRC referred the Appellant to previous tribunal rulings and to the provisions of Notice 719.  The Notice clearly indicated that where VAT had been incorrectly charged it cannot be refunded to the Appellant by HMRC.  Instead the supplier could correct the transaction and refund the Appellant accordingly, but this was a civil matter between himself and the suppliers, which HMRC could not get involved in.

10.        The Appellant wrote to HMRC on 28 October 2008 asking for a reconsideration of the decision.  The Appellant pointed out that the suppliers concerned were not aware that the property was a one-off new-build and that the Appellant was not registered for VAT, and he stated that the mistake was genuine.  He stated that because of the delay in getting the property signed off, the suppliers were not able to reclaim the money back due to the time lapsed.  On 14 November 2008 HMRC replied to the Appellant pointing out again that where VAT has been incorrectly charged it cannot be refunded by HMRC and that it was the responsibility of the suppliers to correct the transaction and refund him accordingly.  HMRC reviewed the decision on 10 December 2008, and upheld the decision, notifying the Appellant that when VAT is not chargeable but has been charged incorrectly there is no provision within the law for this money to be refunded to the Appellant by HMRC.

11.        The Appellant appealed on 30 December 2008 stating as the grounds of his appeal which related to £826.16 VAT, “VAT was charged in error by Midland Window Mart and because of the delay in claiming the VAT back they were unable to claim it back to repay us”.

12.        Although the Appellant’s grounds of appeal merely referred to the windows, it was clear that the amount of money in dispute of £826.16 related to both windows and doors and we have treated the appeal as being in respect of both these items.

The law

13.        The following provisions of the VAT Act 1994 are relevant:

         Section 30 of the Act states

         “(1) Where a taxable person supplies goods or services and the supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section –

a)      no VAT shall be charged on the supply; but

b)      it shall in all other respects be treated as a taxable supply;

and accordingly the rate at which VAT is treated as charged on the supply shall be nil”

“(2) A supply of goods is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.”

Section 35 of the Act states:

         “(1) Where –

a)      a person carries out works to which this section applies,

b)      his carrying out of the works is lawful and otherwise than in the course of any business, and

c)      VAT is chargeable on the supply, acquisition or importation of any goods used by him for the purposes of the works,

The Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.”

“(1A) The works to which this section applies are –

a)     the construction of a building designed as a dwelling or a number of dwellings,

b)      the construction of a building for use solely for a relevant residential purpose or relevant charitable purpose; and

c)      a residential conversion.”

“(1B) For the purposes of this section goods shall be treated as used for the purposes of works to which this section applies by the person carrying out the works in so far only as they are building materials which, in the course of the works, are incorporated in the building in question or its site.”

“(4) The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group [but this is subject to subsection (4A) below]”.

Group 5 Schedule 8 of the Act states:

         “Item No

            2 The supply in the course of the construction of –

                        a) a building designed as a dwelling or a number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or

                        b) any civil engineering work necessary for the development of a permanent park for residential caravans, of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.”

         “Item No

         4 The supply of building materials to a person to whom the supplier is supplying services within item 2 or 3 of this Group which include the incorporation of materials into the building (or its site) in question.”

         “NOTE

         (22) “Building materials”, in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description, (or its site), but does not include –

a) finished or prefabricated furniture, other than furniture designed to be fitted in kitchens;

b) materials for the construction of fitted furniture, other than kitchen furniture;

c) electrical or gas appliances

(23) For the purposes of Note (22) above the incorporation of goods in a building includes their installation as fittings.”

Decision

14.        Section 35 of the VAT Act 1994 sets out provisions relating to the refund of VAT to persons constructing certain buildings.  Section 35(1) permits HMRC to refund VAT that is chargeable on the supply of goods used by him for the purposes of the works.  However, Section 35(1) only permits HMRC to refund VAT on the VAT that is “chargeable”, namely at the rate that it is chargeable.  Section 35 does not permit the recovery of VAT that has been incorrectly charged.  The rate of VAT chargeable on windows and doors fitted in the construction of the Appellant’s dwelling is zero, by virtue of Section 30 of VATA and Item 4, Group 5, Schedule 8 VATA.  Accordingly there is no VAT chargeable on the windows and doors that is refundable in accordance with Section 35 of VATA 1994.

15.        HMRC had supplied to the Appellant with the claim form Public Notice 719.  Section 12.4 of such Public Notice states:

         “What if I had been charged an incorrect amount of VAT?

VAT in error cannot be claimed from Customs and Excise.  When an error occurs, such as when VAT is charged on work that should be zero-rated, your supplier must correct it.”

16.        The Appellant is unable to obtain recourse from HMRC in respect of the 17.5% VAT charged by the supplier in respect of the windows and doors.  The Appellant’s recourse must be against the supplier who incorrectly charged VAT at the standard rate instead of the zero rate.  Whether or not the Appellant can succeed in a civil claim against the supplier is a matter between the Appellant and the supplier, and would necessarily relate to a civil claim against the supplier, and cannot be the subject of the present proceedings.  Nor can we be concerned in these proceedings as to whether the suppliers themselves can obtain a refund from HMRC.  The suppliers are not a party to these proceedings.  Whether or not the suppliers may be time-barred for such recovery, the Appellant himself has no claim for refund of the VAT on the windows and doors against HMRC under Section 35 of the Act.

17.        We adopt the decision of the tribunal in the appeal of RJ Vincett (VTD 10932), where a tribunal held in relation to doors and windows that although VAT had been charged at the standard rate, it had not been properly chargeable, so that Section 35 VATA did not apply, and the Appellant’s remedy was against the supplier rather than HMRC.  We also follow the decision of the tribunal in the case of Philip Simon George (20400), where is was held that an Appellant was not entitled to a refund of the VAT charged on invoices relating to windows that had been charged in error, because the VAT was not chargeable on the supply and fitting of such windows.  We also follow the decision of the tribunal in the case of Dermot O’Reilly (20945), where the supplier should not have charged VAT as the work was a supply of services with goods that were zero-rated.  The tribunal held that no VAT should have been charged and there could be no refund to the Appellant.  The tribunal held that the supplies fell outside the refund in Section 35 because VAT was not properly chargeable at the standard rate.  The tribunal accordingly dismissed the Appellant’s claim against HMRC.

18.        Accordingly, we find for the reasons set out above that the Appellant is not entitled to VAT refunds from HMRC in respect of the windows and doors.  We find that HMRC have acted correctly in accordance with the law that applies.  We find that HMRC are bound by the law that applies in these circumstances, and have acted in accordance with the provisions of their own Public Notice 719.  We therefore dismiss the appeal and make no order as to costs.

MAN/2009/0030

IAN VELLINS

JUDGE
Release Date: 22 October 2009