VAT recovery on white goods and carpets considered

The tax tribunal has released its lengthy judgment in the preliminary hearing of Taylor Woodrow plc (TC03700) which concerned a VAT claim by a house builder in relation to VAT incurred on kitchen white goods and carpets that it did not recover as a result of the residential developer’s Blocking Order. The claim amounted to a figure in the region of £60 million and related to the period from 1973 to 1997. Different versions of the law over this timeframe were considered.

The principal argument of Taylor Woodrow was that the items concerned were not ‘incorporated’ into the dwellings and were therefore not covered by the Blocking Order.  The tribunal disagreed saying all the items were ‘incorporated’ under UK law. The Judge went on to say the following:

346. And even if I am wrong on the meaning of ‘incorporates’ and some or all of the Claim Items were not incorporated, that would not have meant that the appellant wins its case. It would have to go on and establish that either those Claim Items were part of the zero rated supply with the house, which, if they were not ‘incorporated’, is not accepted by HMRC or that even if not zero rated, the appellant is entitled to reclaim its input tax without offsetting the output tax on what would have been a standard rated supply.

The judge also considered whether the Blocking Order was authorised under EU law and concluded that if Taylor Woodrow wanted to rely on the EU law the outcome would be that the sale of the items would likely be standard rated and any adjustment to VAT recovery would have to be offset by the VAT that should have been charged. This is not the end of the matter and the issue of whether the goods formed the part of a single zero rated supply needs to be addressed. It is not known at this stage whether an appeal will be lodged.