VAT: Mirror in the bathroom doesn’t qualifyby
Do mirrored cabinets with fitted lights qualify as building materials for VAT purposes? Neil Warren analyses the court’s thinking in the case of Darren Luke.
If a house builder buys ‘building materials’ for a new dwelling, they can claim input tax on the purchase of the goods if they sell the house when it has been completed ie a zero-rated sale is made (freehold or lease exceeding 21 years).
A person who builds their own dwelling to live in, such as Darren Luke, can claim VAT on building materials through HMRC’s DIY scheme. However, if an item is not classed as a “building material” (eg a carpet), the input tax is blocked, (VAT Notice 708, para 12.2).
Similarly, a building contractor or subcontractor supplying building materials as part of their work on a new dwelling can zero-rate both the labour and materials. But otherwise, they can only zero-rate their labour.
John is a VAT-registered subcontractor and fits a bedroom carpet to a new house being built by Developer Ltd. He charges £1,000 for the carpet and £200 for his labour. He will charge £200 VAT on the materials but the labour is zero-rated.
If John was supplying and fitting wood flooring, then all of his invoice would be zero-rated because a wooden floor covering is classed as a building material (VAT Notice 708, para 13.7).
Louise is a VAT-registered subcontractor who fits a toilet and sink to the bathroom of a new house being built by Developer Ltd. She charges £1,000 for the goods and £200 for her labour. The entire supply will be zero-rated because toilets and sinks are classed as building materials that are ordinarily incorporated into a new dwelling (VAT Notice 708, para 11.2)
Darren Luke (TC07299) purchased three mirrored bathroom cabinets that were designed to be screwed to the wall, which also incorporated lights and a shaving socket.
He claimed VAT through his DIY claim on the basis that they were building materials because they were fixed to the building. However, HMRC disallowed the claim on the basis that they were not building materials because they could be easily removed from the wall.
The tribunal took note of an upper tribunal decision, which forms a legal precedent: Taylor Wimpey Ltd UKUT0034 (TCC) and quoted a comment from that case report:
“Without setting a prescriptive test, there must in our view be a material degree of attachment to the building.”
The phrase “material degree of attachment”’ was considered by the judge in the Luke case, as he noted that it would be a “simple task to disconnect the electricity and unscrew the cabinets from the wall.” The appeal was dismissed.
Lists of materials
HMRC helpfully list specific items that they consider to be building materials or otherwise in VAT Notice 708, paras 13.5.2 and 13.5.3.
These lists do not have the force of law but they have been formulated after taking account of many years of tribunal decisions and arguments put forward by the building industry.
The Luke decision reaffirms HMRC’s view in para 13.5.3 that “elaborate vanity units” and “wall units, such as bathroom cabinets” are not building materials when fitted to a new dwelling.
When I started to read the Luke case, I felt that the taxpayer was justified in making a claim because if the VAT on the cabinets was £569.20, this was a gross spend of £3,415 and therefore these cabinets were not your basic units bought from a local store and must be permanently fixed to the building.
But having read the analysis in the report, and the reference to the Taylor Wimpy case, I changed my mind and concluded that I agreed with HMRC. After all, if something can be removed with a decent screwdriver, its permanent attachment to the building is not a reality.