The most common examples of goods that have specific blocks on input VAT recovery are items such as carpets, furniture and most electrical and gas appliances. There have been a number of cases involving the ‘Builder’s Block’ in recent history regarding HMRC’s interpretation of this legislation. It is most often preferable for a taxpayer to be in a position where input VAT can recovered, which has led to a number of challenges.
In this case, the question was raised whether the supply of window blinds by the taxpayer are building materials and therefore zero rated for VAT purposes, allowing the taxpayer to claim input VAT incurred relating to this supply, rather than being a standard rated supply with related blocked input VAT. HMRC believed that the taxpayer was not entitled to recover input VAT incurred, as the supply was not of a qualifying building material. Two VAT assessments were raised based on this thinking, totalling approximately £40k of input VAT that has been overclaimed by the taxpayer. The judge presiding the case ruled that, based on the evidence received and the taxpayers arguments, HMRC had raised these assessments in error and the taxpayer had correctly recovered input VAT incurred.
While this case was not decided on one major point, a few factors were relevant. For example, the removal of the blinds would cause minor damage to the fabric of the house, so could be considered as being incorporated into the building. Separately, curtain poles serving a similar function to these manual blinds, and being similarly considered incorporated into the building, are already zero-rated for VAT purposes, with VAT recovery allowed. Further to this, the window blinds were fitted as standard for the entire development which numbered several hundred houses, rather than on a bespoke house-by-house basis for an additional fee. This factor was deemed to fulfil the ‘items ordinarily incorporated’ requirements outlined by VAT legislation.
As well as deciding the above, it was found HMRC’s previous view on the matter (outlined in Customs Brief 02/11), that roller blinds and other window furniture are not ‘building materials’, was incorrect and should be changed in line with the conclusions of this case, expanding the scope of this decision to other supplies of blinds.
This first tier tribunal decision is a reminder again to builders and developers that the ‘Builder’s Block’ is still not set in stone and there may be scope to challenge HMRC’s interpretations. With over £40,000 worth of input tax in play here for the taxpayer, as well as potential benefits in future VAT periods assuming HMRC follow this decision going forward, it is always worth considering what amounts of supposedly irrecoverable input VAT are potentially actually recoverable. It should also be noted that HMRC still have the right to challenge the above decision, as this was only a first-tier tribunal ruling, although it remains to be seen whether they intend to do so. Where businesses believe they may have incorrectly under-recovered input VAT incurred it may be prudent to submit a protective claim to HMRC in advance of further guidance in this area.