The UK First-tier Tribunal (FTT) ruled on a GBP 13.5 million VAT assessment concerning floor-fitting services provided by independent fitters. At issue was whether Tapi Carpets had simply arranged a fitting service on behalf of its customers, or had purchased the service from independent fitters and resupplied it.

Background of the Case and FTT's Ruling

The case was initiated by Tapi Carpets, who appealed HMRC assessments requiring it to account for GBP 13.5 million in VAT on floor-fitting services provided to its customers between June 2019 and December 2023. During this period, customers who bought flooring from Tapi had two options: they could arrange the installation themselves, or they could pay Tapi a separate fitting arrangement fee to arrange an independent fitter.

Under the second option, Tapi selected a fitter from a pool of independent fitters that it had vetted and arranged for the fitter to visit the customer’s property. However, the customer paid the actual fitting fee directly to the fitter when the installation took place. In this scenario, Tapi treated itself as a disclosed agent acting for the customer and accounted for VAT on the arrangement fee it charged but considered the actual fitting service to be supplied directly by the independent fitter to the customer. 

HMRC took a different position, arguing that the fitters were effectively subcontractors providing services to Tapi, with Tapi then making an onward supply of the fitting service to its customers. Consequently, the fitting fees would be subject to the standard 20% VAT rate, resulting in a costly VAT assessment

The FTT ruled in favour of Tapi Carpets, finding that it was not responsible for VAT on the GBP 13.5 million in floor-fitting fees assessed by HMRC. After analyzing the contractual arrangements, the FTT concluded that they reflected the actual economic and commercial relationship between the parties. The independent fitters were responsible for carrying out the installation, were paid directly by the customers, and entered into a contract with the customer directly, at the point the fitting took place.

Conclusion

In the end, the FTT determined that the fitting service was supplied by the independent fitters directly to the customers, rather than by Tapi. As a result, Tapi was not liable for the VAT assessed by HMRC. Overall, the FTT's decision highlights the importance of the actual contractual and commercial relationships when determining who is responsible for VAT on services involving intermediaries and independent contractors.