An inconvenient truth
Value Added Tax
‘I love deadlines. I love the whooshing noise they make as they go by.’ (Douglas Adams, ‘The Salmon of Doubt’)
In a moment of weakness I did a very stupid thing – I agreed to write a book on VAT and property transactions. The original author was unable to complete his manuscript ‘because of ill health’. I should have been warned off or, at least, asked to see his medical records. That was in 2009 and here I am still trying to get it done. My ‘final’ final deadline is 16 December (2014 not just any 16 December).
For those of you who have never written a technical tax book I would describe it as trying to complete a battery of interlocking Sudoku puzzles whilst competing against the ticking clock that is the annual finance bill. I have just spent nearly two weeks writing the section of the book dealing with the VAT treatment of supplies of building materials. As a person who is allergic to B&Q and only goes to IKEA to buy their Swedish meatballs, it was tough. I got particularly hung-up on the subject of roller blinds and the case of Price, as you will hear if you read on.
One of the issues in Price was a claim under the DIY house-builders’ scheme for a VAT refund in relation to roller blinds on the grounds that they were building materials. HMRC had opined in VAT 431 NB, (and still does) that blinds were not building materials unless they were ‘integral, that is, blinds inside sealed double glazing units’ but, as the tribunal in Price pointed out, HMRC’s opinion is not the law. Whilst that may be unwelcome news for the deniers at HMRC it is undoubtedly true and, in my view, all HMRC’s publications should bear a health warning to that effect.
The tribunal found the exceptions to the definition of building materials in the relevant legislation helpful in deciding the scope of the term. On first sight it might be thought that building materials were bricks, cement and roof tiles etc. however, the tribunal noted, there would be no point in excluding something from the definition that was not within it, which would suggest that without the exclusions, prefabricated furniture, materials to make fitted furniture, and carpeting would be building materials. This is a well respected rule of statutory construction. The tribunal concluded:
‘although as a matter of judicial notice, because there was no evidence on the point, that roller blinds are as much ‘goods of a description ordinarily incorporated by builders in a [dwelling house]’ as finished or prefabricated furniture, furniture designed to be fitted in kitchens or carpets or carpeting material. In short, there seems to me to be nothing ‘extraordinary’ about their incorporation into a dwelling house by builders. HMRC’s specific exclusion of them in notice VAT 431NB does not in my view affect the legal position.’
Judicial notice refers to facts, which a judge can be called upon to receive and to act upon, either from his general knowledge of them, or from inquiries to be made by himself for his own information from sources to which it is proper for him to refer. Judicial notice is a means of establishing, rather than proving, a fact.
Revenue & Customs Brief 02/11 states that HMRC intends to ignore the decision in Price, and stand by its view that roller blinds are not building materials. The Brief includes the following by way of a possible explanation for this seemingly cavalier attitude (when HMRC had the fairer option of appealing or, perish the thought, accepting what the tribunal said):
‘The Tribunal chairman did not hear any evidence on the point of what is and what is not a ‘building material’ for VAT purposes [Ann: Whose fault was that?] but reached his conclusion as a matter of judicial notice, that is, as a common sense fact.’
This brings to mind the HMRC’s justification for follower notices where the boot is, of course, on the other foot. The HMRC guidance says, at paragraph 1.1.2:
‘When a judicial decision is handed down by the court or tribunal that potentially resolves a large number of cases, many taxpayers with the same or similar arrangements agree to settle, but some do not. They argue that small differences in the arrangements mean that the decision cannot apply to them.’
The follower notice rules can result in a taxpayer in certain circumstances being obliged to settle their dispute with HMRC on the basis of a final ruling in another taxpayer’s case which HMRC believes is relevant, or face the possibility of an additional penalty. HMRC explain at paragraph 1.4.3 of the guidance that a ruling of the First-tier Tribunal will be regarded as ‘final’ (even though it is not a court of record and therefore its decision does not set a precedent) if it is not appealed further.
Now do you think that’s fair? Well, I don’t, particularly bearing in mind the way HMRC dissed John Waters QC, the First-tier Tribunal Judge in Price, when it suited them.
I’m seeing the folk at the Office of Tax Simplification tomorrow. They’d better be wearing their hard hats.
Tax lawyer specialising in business tax, SDLT and VAT