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Sunday, October 7, 2012 - 17:33Home
Don't rely on others
Posted: 09 August 2012
Issue: Vol 170, Issue 4366
Categories: Tax cases, News, Taxable Supplies, VAT
Gemini Riteway Scaffolding Ltd (TC2053)
The taxpayer company was subcontracted to provide scaffolding for halls of residence at two universities. Haymills and Leadbitters were the main contractors.
In December 2007, HMRC visited the taxpayer and found it had not accounted for VAT on supplies made to the contractors, because neither had included VAT in the self-billed invoices they issued retrospectively to the subcontractor.
The VAT officer advised the taxpayer that, although the hire of scaffolding must be standard rated, supplies of erection and dismantling of scaffolding should be zero rated when the project was the construction of a university hall of residence. A fair and reasonable apportionment was required.
The advice was incorrect: under VATA 1994, Sch 8 group 5, zero rating only applies where such services are supplied ‘in the course of construction’. Only the main contractor makes supplies in the course of construction, a subcontractor does not and, as a matter of law, all its supplies should be standard rated.
The VAT officer suggested the taxpayer submit VAT-only invoices to the contractors, which it did, and passed on the VAT to the Revenue.
The officer then became aware of the error of his guidance regarding the zero rating of elements of the scaffolding, and realised VAT was due on erection and dismantling.
The tax was obtained from one contractor and paid to HMRC, but the other contractor had by this time gone into administration, meaning the taxpayer was unable to collect the extra tax through a VAT-only invoice.
HMRC said the VAT remained due and the taxpayer company was responsible for payment. The firm appealed.
The First-tier Tribunal sympathised with the business's predicament but said the problem originated from the taxpayer accepting incorrect self-billing.
Had one contractor not gone into administration, the VAT may well have been obtained, but this reason was not sufficient for HMRC to operate VATA 1994, s 29 and pursue the contractor, rather than the subcontractor, for the outstanding tax. The taxpayer should pay the VAT due.
The tribunal judge suggested it may be appropriate for the Revenue to take into account its officer’s incorrect advice concerning zero rating if the department decided to charge interest or penalties.
The taxpayer’s appeal was dismissed.
Independent VAT consultant Neil Warren pointed out two learning points from the case. First, ‘a supplier has the responsibility for getting the VAT liability right on all its income sources. It is not acceptable to rely on a customer, even where the customer is raising a self-billed invoice.’
Second, ‘in the case of a new charitable building, such as a church or new building for a relevant residential purpose, it is only the services of a main contractor that are zero rated, not those of subcontractors working for the main contractor’.
