United Carpets, like many suppliers of home fixtures and fittings, operated by supplying only goods to its customers. Where the customers decided to use a specialist rather than fitting goods themselves, United Carpets provided an introduction to a home installation technician. The customer then separately contracted the technician for the fitting services. The result was that the customer paid VAT on the carpet purchased from United Carpets, but not on the technician’s fee if they weren’t VAT registered.

HMRC’s view was that the fitted carpet with VAT due on the total amount paid by the customer, combined with the fitting fee, was deemed a single supply by United Carpets. As a result, HMRC issued an assessment for £496,823 in under-declared VAT. The matter went to a Tribunal for it to consider whether the sale of flooring and the fitting service constituted a single supply by United Carpets or two separate supplies; I.e. the supply of the carpets and the supply of the fitting by the independent fitters.

The Tribunal took into consideration the commercial and contractual reality of the supply, determining that United Carpets only acted as an introducer between the customer and the technician. They deemed that, due to the customer directly paying the technician for their services, there were separate contracts between the customer and United Carpets for the goods, and the technician and the customer for installation services. Additionally, United Carpets’ in-store signage made it clear they didn’t provide a fitting service. The commercial reality was therefore that United Carpets did not supply the service of fitting the carpet - it merely introduced its customer to a fitter, and this meant that the separate supply of goods coming from one party and services from another could not be combined by HMRC to create a single taxable event.

There was an additional argument regarding legitimate expectation, as HMRC had previously stated when reviewing the business that it would take no further action concerning the arrangement. However, the Tribunal found this phrase too vague to be binding on HMRC. This was irrelevant, given the decision that two separate supplies existed.

This is a useful decision for businesses supplying goods or services and providing an introduction to other suppliers that their clients may wish to use.  It also highlights the need to make sure that contracts - how customers pay third party suppliers etc. are carefully reviewed, as the outcome of the case may well have been very different. For example, if the carpet supplier had collected the payment from the customer to pass on to the technician and/or documented the fitting fee within correspondence with the customer.
If you have clients affected by this decision or require advice on the impact of providing introductions to third parties, please contact our helpline for advice. Call 0161 477 6600, email enquiries@thevatpeople.co.uk or use our online contact form to get in touch.