First-tier Tribunal (Tax)

[2011] UKFTT 154 (TC)

TC01028

Appeal number: TC/2010/05634

VAT – zero rating – aids for the handicapped – electromagnetic wave pads and mattresses – whether beds or appliances designed solely for invalids or used by handicapped persons – VATA 1994 Schedule 8 Group 12 items 2(b) and (g) – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

MADE TO MEASURE Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: MICHAEL S CONNELL (TRIBUNAL JUDGE) GILLIAN PRATT  (MEMBER)

Sitting in public at 4^th floor, City Exchange, 11 Albion Street, Leeds  on 2^nd February 2011

Ms Amanda Gore for the Appellant

Mr William Brook, Senior Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.       This is an appeal against a disputed decision of the Commissioners of Her Majesty’s Revenue & Customs (the Respondents) to the effect that certain goods (mattresses and wave pads for the elderly and infirm) supplied by the Appellant do not qualify for zero rating under Schedule 8 Group 12 item 2 of the Value Added Tax Act 1994 (VATA).

2.       The Appellant has been registered for the purposes of VAT with effect from 2 October 2009 under registration number 981 4267 00. The Appellant’s registration is still extant.

3.       The Appellant carries on business as a supplier of ‘mobility products and aids to assist the elderly’.

4.       The relevant law regarding zero rating is contained in s30 VATA which provides:

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

5. Schedule 8 Group 12 item 2 VATA zero rates the following supplies :

“The supply to a handicapped person for domestic or his personal use or to a charity for making available to handicapped persons the sale or otherwise, for domestic for their personal use of

(a) medical or surgical appliances designed solely for the relief of a severe abnormality or severe injury;

(b) electrically or mechanically adjustable beds designed for invalids;

(c) commode chairs, commode stools, devices incorporating a bidet jet and warm air drier and frames or other devices for sitting over or rising from a sanitary appliance;

(d) chair lifts or stair lifts designed for use in connection with invalid wheelchairs;

(e) hoists and lifters designed for use by invalids;

(f) motor vehicle designed or substantially and permanently adapted for the carriage of a person in a wheelchair or on a stretcher and of no more than 11 other persons;

(g) equipment and appliances not included in paragraph (a) to (f) above designed solely for use by handicapped persons;

(h) parts and accessories designed solely for use in or with those described in paragraphs (a) to (g) above;

(i) boats designed or substantially and permanently adapted for use by handicapped persons.”

6. Note 3 to Group 12 defines ‘handicapped’ as meaning ‘chronically sick or disabled’.

7. Paragraph 4.5.3 of HMRC’s  Public Reference Notice 701/7 (August 2002) reads :

“it is only the designer or manufacturer who is able to determine whether the goods qualify for zero rating. The designer manufacturer or importer of the goods must retain evidence which demonstrates that the goods in question fulfil the conditions for relief…….. if you are not the designer manufacturer or importer and you think the equipment or appliances you are selling have been designed solely for use by a disabled person you should ask the manufacturer or importer whether this is in fact the case.”

8. Following receipt of the Appellant’s VAT repayment return for the period ended January 2010, HMRC notified the Appellant of their intention to seek to verify any entitlement to a VAT credit and requested documentary evidence to support the Appellant’s claim that its supplies should be considered to be zero rated supplies. HMRC requested specific evidence from the Appellant’s suppliers as to the nature of the supplies and their original purpose.

9. The Appellant provided a copy of its brochures for the mattresses and wave pads. These claim that the mattresses and wave pads are manufactured specifically to each customer’s individual needs and include an inbuilt electrically powered massage system which is the main feature of the product. The massage system is imported from Germany and it is claimed helps to alleviate everyday aches and pains by improving relaxation and reducing stress levels. The Appellant also claimed that the inbuilt massage system was a benefit to some cancer sufferers and that the main feature of the system is the promotion of blood circulation which helped with many different health issues such as arthritis, diabetes and heart problems. The Appellant said that the massage system provided a health benefit for a number of other ailments including lubrication of arthritic joints, prevention of cramp, potential heart problems and water retention. The mattresses and wave pads were covered in anti-mite and anti-allergy material assisting those customers who suffered from dust mite allergies.

10. The Appellant also produced a copy letter from the manufacturers to another supplier which indicated that HMRC had accepted, in relation to the product supplied by that supplier, that the conditions for relief (under Schedule 8 Group 12) appeared to be satisfied. However the Appellant produced no evidence to show that the product supplied by the Appellant and the product supplied by the other supplier (Adjustable Beds Chairs & Furniture Ltd) were one and the same or closely resembled each other.

11. The Appellant provided copy correspondence from its own suppliers which stated “as manufacturers of massage mattresses and massage therapy units selling to the trade only we have to charge full VAT currently at 17.5%. However the onward sale of these goods to a particular individual who may qualify for VAT zero rating can only be determined by the Seller of our products.”

12. Clearly the letter from the Appellant’s suppliers did not provide the necessary information to satisfy the conditions for zero rating. It did not support the Appellant’s contention that the goods supplied should be zero rated.  Having considered the information supplied by the Appellant, HMRC concluded that the items supplied were not electrically or mechanically adjustable beds and that they were designed to be fitted onto an existing bed.  In the absence of evidence from the manufacturer as to the purpose for which the products were initially designed HMRC contend that the supplies do not meet the criteria set by Schedule 8 Group 12 item 2(b) of VATA, and therefore cannot be zero rated.

13. HMRC further contend that the only other paragraph of item 2 that appeared to bear any conceivable relationship to the disputed supplies is paragraph 2(g), but that the key term in that subparagraph is ‘solely’ and that products which are useful or even essential to people with disabilities but which are designed to have a wider application are not intended to be relieved under that sub-paragraph. HMRC concluded that the products must be standard rated supplies and that the Appellant’s VAT Return should be amended accordingly.

14. The Appellant acknowledged in correspondence with HMRC that although the mattresses and wave pads were designed in the first instance to assist individuals with their health issues they were not limited to individuals with disabilities or chronic illnesses. However the Appellants said that in practice the beds and mattresses were supplied primarily to customers who where either disabled or chronically sick and if they did sell any products to an able bodied or healthy individual such products would not be eligible for the exemption of VAT.

15. Other than a description of the purported benefits of the electrically powered massage system within the mattress and wave pads, the Appellant did not produce any technical information, visual description or literature to show why the products should come within the definition of ‘beds’ under item 2(b).

16. There is no definition of ‘bed’ in VATA but the question was addressed in the case of Back in Health Ltd (10003) where it was held that there is a clear distinction between a ‘bed’ which is an item of furniture and a ‘mattress’ or ‘wave pad’ which overlay a bed and is an entirely separate item. Whilst beds may be electrically or mechanically adjustable the mattresses and wave pads were clearly not.

17. With regard to the possible application of item 2(g) no evidence was produced from the designers or manufacturers of the mattresses and wave pads which stated that the products were designed specifically for the handicapped, chronically sick or disabled. In fact the copy correspondence from the manufacturers indicated that the products were available to anyone and even if purchased by people who are ill or in pain, those individuals may not necessarily be handicapped within the definition referred to above.

18. Based on the evidence it was the Tribunal’s conclusion that the mattresses and wave pads were not a ‘mechanical or adjustable’ bed within item 2(b) nor ‘equipment and appliances designed solely for the use by a handicapped person’ within item 2(g) and that consequently the products should be standard rated.

19. The Tribunal accordingly dismissed the appeal.

20. This decision contains full findings of fact and reasons for the decision. A party wishing to appeal this decision must apply within 28 days of the date of release of this decision. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Michael S Connell

TRIBUNAL JUDGE

RELEASE DATE: 3 March 2011