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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Lockwood & Ors (t/a Cash And Carry Carpets) v Customs & Excise [2003] UKVAT V18235 (14 July 2003)
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Cite as: [2003] UKVAT V18235
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Lockwood & Ors (t/a Cash And Carry Carpets) v Customs & Excise [2003] UKVAT V18235 (14 July 2003)
    VALUE ADDED TAX — supply — carpet fitting — whether supply made by carpet retailer or by self-employed carpet-fitter — whether customer contracting with fitter through agency of retailer or contracting with retailer for both supply and fitting — factors to be considered — customers' perception — conclusion that fitters made supplies to retailer and customer's contract entirely with retailer — appeals dismissed

    MANCHESTER TRIBUNAL CENTRE

    SUSAN ELIZABETH LOCKWOODt/a CASH AND CARRY CARPETSBARRY LOCKWOOD AND SUSAN ELIZABETH LOCKWOODt/a NORTHERN CARPET GROUPSUSAN SHARP AND BARRY LOCKWOODt/a LANCASHIRE CARPET CENTRE

    Appellants

    - and -THE COMMISSIONERS OF CUSTOMS AND EXCISE

    Respondents

    Tribunal: Colin Bishopp (Chairman)

    Sitting in public in Manchester on 6 March and 28 May 2003

    Nigel Gibbon, solicitor, for the Appellants Nigel Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

    © CROWN COPYRIGHT 2003

     
    DECISION
  1. The three appellants in these conjoined appeals, two partnerships and a sole trader, all carry on the business of selling carpets by retail. In many cases the purchasers of the carpets ask for the seller to arrange for the carpet to be fitted. The appellants are able and willing to make such arrangements but (with very limited exceptions, not relevant here) do so through the medium of self-employed carpet fitters. The question for my determination at this stage of the appeals is whether the supplies to the customers of carpet fitting services are made by the appellants or by the carpet fitters. If the former, the appellants will be liable to account for VAT on the fitting charges; if the latter, it would be the fitters' responsibility to do so if they were registered or registrable traders. The Commissioners consider that the appellants are liable for the tax, and have issued assessments accordingly; it is against those assessments that the appeals have been brought.

  2. The appellants were represented by Nigel Gibbon, solicitor, and the respondents by Nigel Poole of counsel, instructed by their solicitor's office. I had bundles of documents in relation to each of the appellants, with various authorities, and I heard evidence from Barry Lockwood, a partner in two of the appellants, from two of the carpet fitters, David Hardacre and Stephen Doidge , from Steven Griffin and Lee Holt, the managers of two of the shops from which the appellants trade, from Michael Ardern, who acts as an accountant for all of the appellants and from Carole Hewitt, the assessing officer. Her evidence was limited to her reasons for making the assessment; I am not required at this stage to consider the detail or arithmetic of the amounts assessed and I did not hear evidence on those subjects. Much of the evidence was uncontentious, although there were some differences between the various witnesses accounted for, it appeared, by variations in practice between the three appellants and to some extent by differences of recollection. In what follows I have identified the few areas of difference or of dispute and my conclusions on each issue; where no difference or dispute is identified, it can be taken that I accept the evidence I heard and that it represents my finding of fact.

  3. The appellants trade from a number of shops – currently six – in various Lancashire towns. They all trade mainly at the cheaper end of the market, selling predominantly by the piece, that is by selling a piece of carpet, often a roll end, which the customer buys in its entirety. All the shops do, however, also sell carpet by the metre. The carpets sold by the piece have attached to them, in the showroom, a price ticket showing the price for the piece; carpets sold by length are priced per square metre or sometimes per square yard. In each case the price displayed is for the carpet alone and customers can buy any such carpet and fit it themselves, or make their own arrangements for it to be fitted. The majority of the appellants' sales are to domestic customers, but some sales are to local businesses and are rather larger in scale. They, and their fitting when the appellants are instrumental in arranging it, are handled in a different manner, and those sales are not material to this decision.

  4. As far as domestic customers are concerned, none of the appellants offers, in the sense of actively volunteering, a fitting service. In some of the shops a notice is displayed indicating that fitting can be arranged, but in others the initiative rests with the customer, who must ask, unprompted, for the carpet to be fitted. In either case, however, the appellants can and do arrange for fitting. The manner in which they do so is in all other relevant respects identical, in each of the shops, and it does not seem to me to make any material difference whether customers respond to a notice indicating that fitting can be arranged or, unprompted, ask that it be arranged.

  5. Very occasionally, fitting is undertaken by an employee of one of the appellants. In those cases the appellants accept that it is they who make the supplies of fitting, and they account appropriately for output tax on the fitting charges. Those cases are, however, exceptional and it was not suggested that the fact that supplies were occasionally made in that fashion was a factor that I should take into account. In every other case, the appellants arrange for the fitting to be carried out by a carpet fitter who, as the respondents accept, is self-employed. I understood that none of the carpet fitters relevant to this appeal was registered for VAT, because none traded above the registration threshold, but the principle of this decision would be unaffected even if that were not universally the case.

  6. The manner in which fitting is arranged, when requested by a customer, is that a date and time convenient to the customer is agreed upon between him and the salesman dealing with the transaction in the shop. The salesman then allocates the task to one of the fitters on the shop's panel. Each shop has its own panel of around four or five fitters. None of the fitters works exclusively for any appellant nor, as I understood it, for the appellants as a group; each has other sources of work. Some, but not all, undertake work for more than one of the appellants. Mr Doidge, for example, undertakes both domestic work, the kind with which I am concerned, and the fitting of carpets supplied pursuant to the appellants' "contract" sales to local businesses, as well as work obtained from other sources. Mr Hardacre told me that he secures work in a number of different ways, and considers, as I accept, that he has his own, independent business. He uses a van painted with his own livery and he also attended the hearing to give evidence wearing the uniform in which he carries out his work and which advertises his business. I accept that none of the fitters is "tied" to any one or more of the appellants.

  7. Nevertheless, as I understood the evidence, each of the carpet fitters has an established pattern in that he makes himself available to undertake work for one or more of the appellants on one or more fixed days of each week. The sales staff at each shop thus match customers' requirements with fitters' availability so that, so far as possible, each customer's requirements are met and each fitter is provided with a full day's work on the day or days for which he is available. At the beginning of such a day, the fitter first attends the shop which has allocated work to him, to obtain details of the jobs he is to undertake and to collect the carpets he is to fit, and then travels to the customers' homes in order to fit their respective carpets in the sequence previously determined in the shop.

  8. Mr Lockwood said that in some cases a customer might ask for a particular fitter, presumably because that fitter had undertaken work for him before. None of the other witnesses suggested that this occurred and I am satisfied that it would be very much the exception rather than the rule. In the vast majority of cases, the customer merely asks for fitting to be arranged and his first contact with the individual fitter is made when the fitter arrives at the customer's home with the carpet in order to fit it. Neither Mr Doidge nor Mr Hardacre mentioned that he had fitted carpets for a particular customer of any of the appellants on more than one occasion, and each confirmed that his first contact with the customer was on his arrival with the carpet.

  9. Among the documents was what was described as a "customer information" sheet which Mr Lockwood told me, quite candidly, he had copied from a similar sheet used by one of the appellants' larger competitors. It contains the following sentence: "Fitting services are carried out by independent contractors under a separate fitting contract to be entered into by the customer and the fitter — the fitter is responsible for the standard and quality of fitting." It was suggested by Mr Gibbon that this document made it clear to customers that it was not the particular appellant which had sold the carpet, but the fitter, who was undertaking the fitting service and that customers could not have been in any doubt that the appellant merely put the customer and the fitter in touch with each other.

  10. The flaw in this argument is that the evidence did not support the conclusion that the information sheet was systematically handed to customers. It was headed with the name of only one of the appellants. Mr Holt, who managed one of that appellant's shops, did not recognise the document. It appears not to have been used by the other appellants at all. Mr Lockwood suggested that the other appellants had similar information sheets, but no copies were produced, and I am not persuaded that they did have any equivalent. He conceded that the main purpose of handing the information sheet to customers was to make it clear that it was their responsibility to clear the room of furniture before the fitter arrived. I was left with the distinct impression that if the information sheet, or any similar document, was handed to the customer, he received it only after he had agreed on the price of the carpet and the fitting, and had paid that price or a deposit — in other words, after the contract for fitting had been made.

  11. Mr Hardacre and Mr Doidge both told me that they try to ensure that the customers are aware that they are self-employed, and they said they consider that they make their supplies to the customers, rather than to the relevant appellant. Mr Holt's evidence was that customers who ask for fitting are told it can be arranged: "we can get hold of fitters" is a convenient example of what is said by the sales staff to customers. Mr Griffin said that the sales staff at the shop of which he was the manager make it clear to customers that although fitting can be arranged, the fitters are self-employed. I accept that the appellants, and the fitters themselves, did make reasonable efforts to explain to customers that the fitters are not the appellant's employees. I will return to the customers' perception in due course.

  12. Mr Lockwood explained that the fitting charges were agreed between him, on the one hand, and the fitters collectively on the other. The fitting charge, currently £1.50 per square yard for a standard carpet without complications, had increased over the years. I am sure Mr Holt's belief, as he told me, that the charge had remained unaltered for 20 years is due to a failure of recollection. If the carpet were to be fitted in a difficult location - for example, on a spiral staircase - or there were to be any additional work, such as the moving of a significant amount of furniture, the charge might be increased. The majority of carpets are supplied to be fitted in regular shaped rooms, and no variation of the fitting charge is required, but if necessary the appellants' salesperson would visit the customer's home in order to determine whether the standard fitting charge should be increased. Where it was thought that the work was particularly complicated, the salesperson would be accompanied by a fitter. I formed the impression that such visits, with or without a fitter, were unusual. It was not suggested, so far as the outcome of this appeal is concerned, that any distinction should be drawn between such cases and the more common sales where a standard charge for fitting was levied without prior inspection.

  13. What was apparent from the evidence was that it is in every case the selling appellant which agrees the fitting charge with the fitter, either by reference to the standard charge, without individual discussion, or specifically with regard to a particular sale. The customer is simply told what the fitting charge will be. The appellants make nothing for themselves on fitting charges, merely passing on to the customer the fee which the fitter is to receive, and for that reason fitting charges are not negotiable. It is for the same reason that the appellants do not actively encourage customers to ask for fitting; as Mr Lockwood explained, the appellants feel it necessary to make arrangements for customers as part of their overall service, but they do so for reasons of goodwill rather than any other. I suspect that, in some cases, if fitting were not available the customer would decline to buy and go elsewhere, and the appellants derive an obvious benefit from arranging fitting, even if not in direct monetary terms. Since the fitting charges are fixed, any discount the appellant might offer would be absorbed entirely in the selling price of the carpet. None of the appellants has ever offered free fitting, even as a promotional inducement; customers who require a carpet to be fitted must invariably pay a supplementary charge for the service.

  14. I heard a good deal of evidence about how the appellants account for the fitting charges. Within the bundles of documents were several examples of invoices to customers, some for sales where the entire price had been paid immediately, and some where a deposit had been paid and the balance was to be handed over on completion of the fitting. In some cases, the invoice reflects only the supply of a carpet, occasionally with but usually without delivery. In those cases, as I understood the matter, the customer had not sought to have the carpet fitted by, or through the medium of, the appellant from which he had bought it, but intended to fit it himself or make other arrangements. In other cases the invoice covered both supply and fitting; the majority of such invoices bear the words "supply and fit". In no case are the charges segregated, so as to show the price of the carpet and the cost of the fitting as distinct items: in every case within the examples produced to me a single price is shown without any indication of the underlying calculation. The evidence I heard from Mr Lockwood and the shop managers was that they simply worked out the overall total, allowing for the fitting charge where fitting had been requested, and entered that onto the invoice. The customer would know the price of the carpet – at least, he would do so if he were buying a carpet priced by the piece – and if he wanted to know the cost of the fitting he could easily work it out for himself. That had always been the appellants' practice and they had given the matter no great thought.

  15. If a customer requires fitting, and pays the entire price when placing his order, the practice of each of the appellants is that, within the shop, the price of the carpet and the fitting charge are segregated, the salesman placing cash to the value of the fitting charge in the shop safe, in an envelope or in some other way identifying the money to the fitter to whom the task of fitting the carpet has been allocated, in order that the fitter can collect the money on completion of the fitting. If the customer should pay by cheque or credit card the entire payment is processed through the appellants' bank account but the fitting charge is extracted from the cash within the shop till. In cases where the customer has paid only a deposit, it is explained to him that the balance of the total charge must be paid to the fitter on completion of the work; the fitter then, at the end of the day, returns to the shop in order to account to the appellant for the money he has received (retaining his fitting charge) and at the same time he receives any outstanding money due to him retained in the shop. If the final payment is made by cheque, the customer is required to make his cheque payable to the relevant appellant, and a cash adjustment is made when the fitter returns to the shop.

  16. All of the appellants take care to segregate the fitting charges from the sums received for the sale of goods in their internal accounting. I saw an example of a daily cash sheet on which fitting charges were identified, but as a memorandum item rather than as a component of the daily takings. Mr Ardern told me that most of the shops make weekly rather than daily returns (the one shop which does make daily returns is the one in which his own office is based) but they all adopt essentially the same practice, of treating fitting charges as money they keep on one side for handing on to the fitters. He prepares the appellants' records, including their annual accounts and their VAT returns, by reference to the selling price of goods, and leaves the fitting charges entirely out of account. He said that the appellant had been accounting in that fashion for several years, without any adverse comment on VAT control visits, until Mrs Hewitt visited in November 2000 and raised the objection to the appellants' method of accounting for the fitting charges which has led to the current appeal. Some of the correspondence between the parties following Mrs Hewitt's visit focused on the complaint that Mrs Hewitt was now objecting to a practice which had been tacitly approved on earlier visits. I can understand the appellants' grievance but I must, of course, determine this appeal on the basis of the evidence and the law, and not on apparent past approval, whether or not mistaken, of the appellants' practice.

  17. It was clear from the evidence that it was the appellants which expected to receive, and to have to resolve, complaints from customers. That was so whether the complaint was about the quality of a carpet, or the quality of the fitting. If the complaint was about the quality of fitting the appellant concerned would, of course, expect the fitter to put matters right and both of the fitters who gave evidence before me accepted that it would be their responsibility to do so. Nevertheless, it was quite clear that none of the appellants would effectively wash its hands of a complaint about fitting; it would regard itself as being under a continuing obligation to deal with the complaint to the customer's reasonable satisfaction, though Mr Lockwood described this as part of its after sales service and a goodwill gesture, rather than a contractual obligation.

  18. It does not seem to me that it would require a great deal of change in the appellants' practice for it to be quite clear to all concerned that the customer was entering into two distinct contracts, one with the relevant appellant for the purchase of the carpet, and another with the allocated fitter for the separate supply of fitting. They might arrange that their sales staff explained to customers in clear terms that a carpet which had just been purchased could be fitted on a day of the customer's choosing by a named fitter, explained clearly the calculation and the amount of the fitting charge and stated that although the sales person could make the arrangements he was doing so as an intermediary, and that the customer and fitter were entering into a separate contract for the fitting. Other procedures might be equally effective. The question I must ask myself is whether the appellants' rather less explicit practice achieved the same result.

  19. The appellants' case really stands or falls by the validity of the proposition that, by telling the customer that the fitter is self-employed, the sales person could be said to have invited the customer to instruct the selling appellant, as his agent, to arrange a separate contract with that fitter. It was not suggested that any customer was told, in terms, that the selling appellant would act only as an agent; if the appellants' case is to succeed I must be satisfied that the coming into existence of an agency arrangement is a proper inference to be drawn from the evidence I heard of their practice. I recognise that the relationship of principal and agent can come into existence by implication: see Customs and Excise Commissioners v Johnson [1980] STC 624. Whether it has done in any particular case has to be determined in the light of the evidence, weighing one factor against another: see Customs and Excise Commissioners v Music and Video Exchange Ltd [1992] STC 290.

  20. One of those factors is the customer's perception, which is not necessarily decisive, and may even be of little relevance when, for example, the customer is indifferent about the identity of the person with whom he is dealing. However, in a case in which it is contended that, contrary to what he might otherwise believe, the customer has entered into two separate contracts and, even if only by implication, has agreed to do so, his perception, and the measures taking by the appellants to ensure that it is correct, assume some importance.

  21. In my view a customer, with a rudimentary understanding of the law of contract and addressing his mind to the matter, would probably realise that the fitter's being self-employed would make it necessary that there should be a second, separate, contract for the fitting. The question is, therefore, whether he would realise, from the bald statement that the fitter was self-employed, that it was he rather than the selling appellant who was being required to enter into that second contract. In my view it is unlikely that he would. In reaching that conclusion I have been particularly influenced by the fact that the customer plays no part at all in selecting the carpet fitter, except in very exceptional cases, has no opportunity of negotiating, or even attempting to negotiate, the fitting charge and in almost every case has no contact whatever with the fitter until the latter's arrival at his home. Although the price of a carpet with fitting is invariably greater, as I accept, than the price of the same carpet without fitting, the appellant's invoices, in those cases in which fitting is arranged, equally invariably state a single total, and bear the words "supply and fit" or a close approximation. The customer has no means of knowing that the appellants make no profit for themselves from the fitting charges; this might possibly emerge if the customer attempted to obtain a discount, but there was no suggestion it was made clear to him as a matter of course. Whether he pays all the price immediately or pays a deposit on placing his order and the balance at the conclusion of the fitting, his payment is never segregated between the cost of the carpet and the cost of fitting; as far as the customer is concerned, he is paying the overall total to the appellants. The fact that the appellant would not only deal with complaints about the quality of fitting, but accepted that customers would expect it to do so, speaks for itself.

  22. I have concluded that the customer would consider that his entire contract was with the seller; I am satisfied not only that the appellants have not done enough to change that perception, but that the features of the arrangements which I have described would be more likely to encourage the customer to that view. That being so, it seems to me impossible to argue that he nevertheless consented to the seller's acting as his agent in arranging a separate contract with the fitter; in my judgment he would consider that he was doing no more than agreeing to the appellant's engaging a self-employed fitter, rather than an employee, to undertake the fitting. I have, even so, considered whether the customer's perception might be mistaken and whether the appellants could reasonably have considered that they had authority to arrange separate contracts between the customers the fitters, and did so, or at least purported to do so.

  23. I am satisfied that they did not. The arrangements for fitting were not made on an individual basis as the need arose by, for example, the sales person telephoning fitters until one who could do the work on the preferred date was found. The appellants had established their own panels of fitters. It was they who allocated the work, and they who agreed the charges. Although, as I accept, the money due to the fitters was segregated from the appellants' own money (that is, the money received for the sale of goods) as soon as practicable, and kept separate until it was handed over, I regard that practice as little more than a matter of convenience; at best, it is a reflection of the appellants' belief that there were separate contracts (and a necessary measure if there were) but it is not, in my view, an indication that in truth the customer had entered into two distinct contracts. Moreover, the customer was in no case given the opportunity of effecting the segregation himself. The fitters did not know, until they arrived at the shop in the morning, to which customers they had been allocated, and the fitters had no opportunity of organising their work schedules themselves. Just as the customers had no opportunity of negotiating with the fitters, so the fitters had no opportunity of negotiating with the customers. In particular, it seemed to me from the evidence that if, by mistake, the shop had applied the standard fitting charge when an enhanced fee could properly have been demanded, it was not open to the fitter to renegotiate the fee with the customer.

  24. All those factors, in my judgment, point away from the conclusion that there was a separate contract between customer and fitter. The only factor which I can identify which points in the opposite direction is that the fitters were self-employed and that customers were made aware of that fact. That, by itself, is insufficient to dictate the true nature of the arrangements. In my opinion the proper view is succinctly reflected in the words used by the appellants on their invoices: "supply and fit". The appellants' obligation to the customer was to supply and fit, and the fitters made their supplies to the appellants in order that they could meet that obligation.

  25. Unfortunate though it may be for the appellants that they had taken the absence of any adverse comment as tacit approval of their practice, until Mrs Hewitt visited, I have no doubt that she is right and that the preliminary issue must be resolved in the respondents' favour. By consent, I direct that the appeal shall be re-listed for the resolution of any issue which cannot be agreed between the parties, such re-listing to follow upon the application of either party to be made within three months after the release of this decision. If no such application, and no application for an extension of that time limit, is made within that period the appeal is to be regarded as having been determined finally in the respondent's favour.

  26. I make no direction in respect of costs.

    27. COLIN BISHOPP
    CHAIRMAN
    RELEASE DATE: 14 July 2003

    MAN/01/427, 428, 828

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