Retailers who sell kitchens, bathrooms, or flooring often work with third-party contractors to provide fitting services. While this may seem straightforward, HMRC is increasingly challenging these arrangements when it comes to VAT.
Why HMRC challenges these arrangements
HMRC frequently argues that the retailer is making a single supply of goods and fitting services. If HMRC is successful, VAT becomes due on the full value of both the goods and the fitting work. This creates particular risk where the fitter is not VAT registered, as HMRC may still expect the retailer to account for VAT on the full supply.
The United Carpets case
A recent First-Tier Tribunal case, United Carpets (Franchisor) Limited v HMRC, shed light on this issue. The Tribunal found that the retailer was not supplying fitting services.
The decision was based on three key points:
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In-store signage made it clear that the retailer did not provide fitting.
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The retailer’s role was limited to introducing customers to independent fitters.
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Contracts and payments for fitting were strictly between the customer and the fitter.
By keeping the supplies distinct, the retailer was only responsible for the goods and not the fitting.
Practical steps to reduce VAT risk
Retailers can minimise the risk of a challenge from HMRC by ensuring that both the contractual terms and the day-to-day reality demonstrate that goods and fitting are separate supplies. Key steps include:
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Ensuring fitting contracts are between the customer and the contractor only
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Making sure customers pay the fitter directly
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Displaying clear signage and wording to confirm you do not provide fitting services
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Aligning what happens in practice with what is set out in contracts and customer communications
Taking these steps helps retailers show that they are only supplying goods, not a combined supply of goods and fitting.
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