19428
INPUT TAX CREDIT – VAT incurred on provision of electric window blinds in a new dwelling house – whether these are goods ordinarily incorporated by builders building materials and therefore zero-rated or not – VAT (Input Tax) Order S1 1992/3222, arts 2 and 6 and group 5 of Schedule 8 VATA 1994.  Appeal dismissed.

LONDON TRIBUNAL CENTRE

TOM PERRY	  Appellant	

and
		
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS	Respondents	

Tribunal :  Rodney P Huggins F.C.I. Arb (Chairman)

Sitting in London on 2 December 2005.

The Appellant in person.

Christina Forrest,  Counsel from the Solicitor’s Office of H M Revenue and Customs for the Respondents

	

 CROWN COPYRIGHT 2005

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	DECISION

The appeal

1.   This is an appeal by Tom Perry (Mr Perry) against a decision by the Commissioners that electric blinds (both external and internal) which open and close automatically according to the weather installed in the construction of his new dwelling house at Hyde Heath, Amersham are standard rated for VAT. The decision was contained in an E mail dated 17 June 2005 from Gill Houghton, an officer of H M Revenue and Customs (HMRC/Customs).

The legislation

2.   Article 6 of the Value Added Tax (Input Tax) order 1992 (“the blocking Order”) provides :

“6.  Where a taxable person constructing, or effecting any works to a building, in either case for the purpose of making a grant of a major interest in it or any part of it or its site which is of a description in Schedule 8 to the Act, incorporates goods other than building materials in any part of the building or its site, input tax on the supply, acquisition or importation of the goods shall be excluded from credit under section 25 of the Act.”  (emphasis added).

3.   “Building materials” is defined in article 2 of the blocking Order for the purposes of that Order as meaning –

“… any goods the supply of which would be zero-rated if supplied by a taxable person to a person to whom he is making a supply of a description within either item 2 or item 3 of Group 5, or item 2 of Group 6, of Schedule 8 to the Act.”

4.  Item 2 of group 5, Schedule 8 of the Value Added Tax Act 1994 (the 1994 Act) provides that “(a) a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or (b) any civil engineering work necessary for the development of a permanent park for residential caravans, of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.”

5.   Item 4 of Group 5, Schedule 8 of the Act states that “the supply of building materials to a person to whom the supplier is supplying services within item 2 or 3 of this group which include the incorporation of the materials into the building (or its site) in question.”

6.   Note 22 to Group 5, Schedule 8 of the 1994 Act provides that “building materials, in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description, (or its site), but does not include – 

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	(a)   finished or prefabricated furniture, other than furniture designed to be fitted in kitchens ;

(b)   materials for the construction of fitted furniture, other than kitchen furniture ;

(c)   electrical or gas appliances unless the appliance is an appliance which is:
        
        (i)   designed to heat space or water (or both) or to provide ventilation,
               air cooling, air purification, or dust extraction; or 

        (ii)  intended for use in a building designed as a number of dwellings
               and is a door-entry system, a waster disposal unit or a machine for
               compacting waste; or

        (iii) a burglar alarm, a fire alarm, or fire safety equipment or designed
               solely for the purpose of enabling aid to be summoned in an
               emergency; or
     
        (iv)  a lift or hoist;

(d)   carpets or carpeting material.”

7.     Note 23 to Group 5, Schedule 8 of the 1994 Act provides that “for the purposes of Note (22) above the incorporation of goods in a building includes their installation as fittings.”

The issue

8.   The Appellant maintained that the provision of electrically-generated blinds at his new property were entitled to be zero-rated as they fell into the category of “goods of a description ordinarily incorporated by builders” into a building designed as a dwelling to be used solely for residential purposes.  The Commissioners considered the windows did not fall into this category and therefore VAT had been included at the standard-rate and no input tax credit was applicable.

The evidence

9.   The Appellant gave oral evidence which except for his above assertion was not in dispute.  He also produced some seven documents.

10.   Miss Forrest for the Commissioners put in a bundle of documents consisting of 113 pages and some later documents including a skeleton argument.  She did not call any witnesses.

The facts

11.   From the evidence before me, I find the following facts :-		

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	12.   In 2000 the Appellant decided he wanted to move with his family from London to Buckinghamshire and after searching found an old cottage standing in two thirds of an acre at Hyde Heath west of Amersham.  He demolished the old building and decided to build a modern steel and glass eco house of about four thousand square feet.  The vertical surface of his house is sixty-five per cent glass.  He obtained planning consent from the local authority and commenced building in November 2001.  He used various sub-contractors in the building works and aimed to occupy the house by the end of December 2005.  [This house is referred to in this decision as “Cloud 8”]

13.   As he cared about the environment, he did not want to install carbon burning air-conditioning to cool his hours in the summer nor provide some heating in the winter.  He therefore integrated nine automatically operated aluminum alloy blinds into the external window frames passively to ventilate his house.  In addition six blinds were fitted internally.  There was an under floor heating system also installed.

14.   These external blinds were linked to a computer building management system to control the twenty-four thermostatic zones in the house. A weather station on one of the roofs of the building was also linked into the system.  Motors on a limited number of high-level windows ventilate principal areas of the house to keep the premises cool in hot weather.

15.  The external blinds are raised and lowered depending on weather conditions by electric motors which are enclosed within head rails.  The angle of tilt can be regulated to keep direct sunlight out and let natural daylight in as required.

16.  The six internal blinds are the same except they have no side runners and they do not need waterproof mechanisms and motors.

17.   Mr Perry asked an engineering service company known as Rybka Smith Ginsler and Battle London Limited to advise him on his thermal and lighting requirements and they delivered an analysis to him in June 2001.  He also employed a local firm of chartered surveyors Peter North and Partners to assist him in obtaining (inter alia) the window blinds.  They wrote to him on 9 March 2004 as follows :

“Please find enclosed a copy of Valuation Nr 1 for Hunter Douglas Limited.  We have received an invoice form Hunter Douglas totalling £3,830, plus VAT of £670.25.  This invoice is, as far as we are concerned, over claimed in that there are three window blinds still to fit.  We have therefore reduced the fitting element of the invoice accordingly.

As far as the VAT is concerned, we have checked back through the VAT document Buildings and Construction, Notice 708 and consider that the window blinds would be classed as an article ordinarily incorporated into a 		

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	building as Clause 13.8 and are also designed to limit the build up of heat which will be covered under Clause 13.6.  Consequently, there should be no VAT included on the cost of the blinds.  We have written to Hunter Douglas to confirm this is the situation on your behalf.

Payment terms for Hunter Douglas are by return and we would therefore ask that you arrange for payment to be made as soon as possible …”

18.   Hunter Douglas Limited were the suppliers of the blinds and although the above letter stated VAT of £670.25 was being charged, Peter North and Partners indicated they were pursuing confirmation that the VAT should not have been included.  Mr Perry indicated at the tribunal hearing that he was not able to recover the VAT from Hunter Douglas Limited and consequently decided to contact Customs to ascertain the position.  He telephoned the Customs National Advice Centre on 11 June 2004 and enquired whether the installation in a new property of electric blinds which opened and closed automatically according to the weather would be standard rated.

19.   Customs Officer Jason Sanders informed him that if the blinds were being built with the house, zero rating would apply.  However, he was advised to write in.

20.   Mr Perry reacted quickly and on the same day sent an E mail to Customs stating that he was creating a very environmentally friendly house, of which over 60% of the vertical surface was made of glass. As a result blinds which were linked to a building management system in the house and open according to the heat were installed. He added “my contractor, who is unfamiliar with self build would appreciate a confirmation letter that his services to supply and fit these items are VAT free at the point of entry.”

21.  On 24 June 2004 Customs Officer Gill Houghton of the Commissioners’ National Advice Centre replied again by E mail to Mr Perry informing him that “there is no provision for the zero rating of the blinds in the situation you describe.  This is because they would not be considered to be normal builder’s materials.  Therefore the blinds and their installation will be standard rated for VAT purposes. However, as they are linked to a Building Management System, the controls and any wiring in that is required for the operation of the blinds would qualify.”

22.   The Appellant wrote again by E mail dated 29 June 2004 to Gill Houghton seeking to appeal on the basis that the Commissioners’ guidelines were dated and did not take into account the novel design and technology of his property.  A short while later, he supplied an article describing the blinds used in the house.

23.   The matter was then referred to another Customs Officer June Stephen for review. After seeking advice from the Commissioners’ Construction Policy Unit she informed the Appellant by E mail on 10 September 2004 that the original decision would stand as the Commissioners were of the opinion

		

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	that at present the Appellant’s blinds were not of a type commonly incorporated into a new house.  The blinds would therefore remain standard rated.

24.  Subsequently, further correspondence ensued between carious HMRC Officers acting for the Commissioners and the Appellant and his MP Cheryl Gillian.  Finally, by way of E mail dated 14 January 2005 the Appellant wrote to Kris Romaski the Head of the Division of HMRC responsible for the construction VAT reliefs reiterating at length his views challenging the Commissioners’ decision. Kris Romaski replied in a letter dated 31 January 2005 setting out the law governing this area and affirming once again that the Commissioners could not change their stance.

Authorities produced by the parties

25.   The Appellant and Miss Forrest produced the following authorities. In tribunal decisions only the names of the Appellants are quoted and the name of the Commissioners omitted for brevity.  Further reference in this decision is abbreviated to the names appearing in italics after each case.

Customs and Excise Commissioners v Smitmit Design Centre Limited [1982] STC 25 (Smitmit)

F Booker (Builders & Contractors) Limited (1977) VAT TR 446 (Booker)

Frank Haslam Milan & Co Limited (1989) VAT TR 4822 (Frank Haslam Milan)

Rialto Homes PLC (1999) VAT TR 16340 (Rialto Homes)

The Appellant’s arguments

26.   Mr Perry put forward his main submission in an E mail of 29 June 2004.  he stated the following reasons .

27.   My self build was unusual in many ways.  The building is modernistic, highly glazed and combines many different materials to create a highly thermally efficient home and takes advantage of passive solar gain in winter.  The blinds are machine fitted into 8mm mild steel frames.  They are a permanent fixing.  They are not used as decoration of for privacy but are essential in a highly glazed, passively ventilated house to cool the property.  Without such blinds, the building would be unoccupiable.

28.   Although the blinds are not of a description commonly or usually incorporated in new houses, the time has come for them to be considered to be ‘ordinarily installed.’  He also said there is nothing quite like a house that he has had designed and built, arguing that one had to start from somewhere.  To emphasise this point at the hearing he referred to the tribunal decision of Booker.  The involved the installation of radiant convector gas fires in the 		

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	lounges of a number of houses built in Yorkshire.  The tribunal allowed the appeal deciding that such fires were one of the forms of heating normally installed by builders as fixtures.

29.   The Appellant also pointed out that the photovoltaics (solar panels) on roofs were now accepted by Customs as being goods of a description ordinarily incorporated for the purposes of Note 22 and therefore zero rated for VAT.  He asked why his blinds were not treated in the same way.

30.   He referred to paragraph 8.11 of Notice 719 which mentions a number of items accepted as building materials ordinarily incorporated in a building including air-conditioning, heating systems and ventilation equipment.  He pointed out that Cloud 8 has no air-conditioning system but paragraph 8.9 allows for appliances “designed to provide ventilation, air cooling …” to be claimed for.  His blinds were designed for the purpose of cooling the property.

31.  It was also mentioned that initially he had been told over the telephone that if the blinds were being built into his house, the zero rating would apply.

32.  Mr Perry contended the VAT charge was anti environmental and a significant anomaly exists between his claim and other environmental technologies.

The Respondent’s arguments

33.   Miss Forrest said that how the Appellant’s cooling system incorporating built in blinds worked was not in dispute.  However, the Commissioners could not accept that the blinds were building materials as they were not ‘ordinarily incorporated by the builders’ in the construction of buildings.  She referred to the High Court case of Smitmit for the definition of the word “ordinary”. Other synonym would be ‘commonly’ or perhaps ‘usually’.

34.   She submitted that the words ‘building of that description were defined in Rialto Homes at paragraph 23 and it was made quite clear in that decision that it is necessary to look at the whole spectrum of dwelling houses and not a particular type.  The Appellant’s house failed to meet the requirements of that test.

35.   It was also asserted by Miss Forrest that the blinds were not designed either to provide ventilation or air cooling and she was supported by the tribunal decision in Frank Haslam Milan where the subject was a similar system of blinds.

36.  In her opinion, the Commissioners had no discretion to apply zero rating to the blinds.

		

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	Reasons for decision

37.   This appeal is against the decision of the Commissioners that certain goods (namely window blinds) supplied to the Appellant in the course of construction of his new home are standard rated for VAT.  The issue for the tribunal to determine is “are the blinds building materials ordinarily incorporated by builders” in these circumstances ?

38.  In my view, the correct legal tests to be applied is that contained in Note 22 to group 5, Schedule 8 of the 1994 Act.  It provides “building materials, in relation to any description of building, means goods of a description ordinarily incorporated by builders … but does not include …(c) electrical or gas appliances unless the appliance is an appliance which is (i) designed to hear space or water (or both) or to provide ventilation, air cooling, air purification, or dust extraction …”

39.   There is no doubt that Mr Perry has built a domestic property which is a leader in its field. Cloud 8 is an extraordinary house with many innovative features aimed at creating a low energy consumption.  One of its features is the inclusion of electrically controlled blinds designed to take advantage of passive solar gain in winter and to cool the house in summer.  What is significant is that, according to Mr Perry, there are apparently only some 24 houses of Germanic design in the United Kingdom which have a similar system installed.  Therefore, I accept that in this country this system of blinds is not a common occurrence.

40.   As a preliminary issue, it is necessary to consider the meaning of the word ‘ordinarily’.  This was looked at by Glidewell J in the case of Smitmit which involved a ruling of the Commissioners that built-in wardrobes failed to qualify for zero rating.  He held that the word ‘ordinarily’ in the phrase ‘ordinarily installed by builders as fixtures meant ‘usually’ or commonly’.  He also said that it was not sufficient that an article fell within a general class of items which could be regarded as ‘ordinarily installed’ but the tribunal in that case should also consider whether the specific type of article in question fell within the definition of ‘ordinarily installed’.  [The legislation has subsequently been amended and the phrase ‘ordinarily installed’ has been replaced by the phrase ‘ordinarily incorporated’.]

41.   The tribunal adopts that rationale.  The fundamental question is whether the blinds that were incorporated in the building of Cloud 8 are of a type commonly incorporated into a new dwelling house.  There is no doubt that the blinds used by the Appellant in building his property were quite specific and special and were not of a type usually installed into a new home.

42.   Note 22 also refers to a ‘building of that description’.  As mentioned by Miss Forrest that was defined in the tribunal decision of Rialto Homes which involved the incorporation of trees and shrubs in a landscaping scheme of a residential development.  The tribunal stated in paragraph 23 as follows :

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	“In our judgment one cannot just confine one’s attention to the particular development in question and ask simply whether trees and shrubs are ordinarily incorporated in developments of that kind.  However, if that were the right approach, we would have agreed … that there is overwhelming evidence that trees and shrubs of the kind planted here are ordinarily incorporated in such developments.  But approaching the matter, as we have held we must, looking at the building of new houses in general, we do not have evidence as to whether a requirement to plant trees and shrubs is a normal condition attached to a planning consent for, say, a single plot.  We suspect that it is much less likely with a very small development but not impossible.  But with so much building of new homes taking place in developments of the sort we have before us, in our judgment it can be said that the planting of trees and shrubs is an ordinary occurrence with the building of new homes. “ordinarily” does not mean “invariably” and the fact that that may not be a requirement in some cases does not mean that such goods are not “ordinarily incorporated” giving those words their natural meaning.”

43.   This tribunal agrees with the tribunal in Rialto Homes that the test is whether specific goods were ordinarily installed by builders of dwelling house looking at the whole spectrum of dwelling houses not just at the type of dwelling house such as Cloud 8.

44.  The failure to meet the requirement of the above tests impedes reference to the exception as set out in lettered paragraph (c)(i) of Note 22 to Group5, Schedule 8 of the 1994 Act.  The Appellant contended that his blinds fell within the description electrical appliance … “designed to heat space … or to provide ventilation … (or)… air cooling”.

45.   Miss Forrest maintained that in any event, the blinds are not designed either to heat space or provide ventilation or air cooling.  She referred me to the tribunal decision in Frank Haslam Milan which also involved similar Venetian blinds which opened and closed automatically so as to admit or retain heat.  The tribunal in that case asked the question whether the windows which incorporate the blinds, or the blinds alone (as the case may be) are designed to provide space heating.  The functioning of the blinds was virtually identical to those in question in this appeal.  I agree with their findings on page 7 of the decision which are as follows :

“The windows, with or without the blinds, do not in our judgment provide heat; they merely admit heat or allow it to escape.  The function of the blinds is merely to regulate the amount of heat which is allowed to enter or escape through the windows.  By doing so, in our judgment they minimise the use of the appliance which provides heat (the central heating system), but they do not themselves provide heat.  In our judgment only in the loosest sense it is possible to regard the windows or the blinds as part of the heating system, in that they are part of the general system by means of which the house is warmed and kept warm.  But in that sense it could equally well be said that 	 	

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	the windows (even without blinds), the insulating materials and the draught-excluding devises incorporated in the house are also part of that system.  In that sense too, the windows and blinds could equally well be said to be part of the house’s cooling system because one of their functions is to allow surplus heat to escape …”

46.   Although the blinds in the Frank Haslam Milan appeal previously assisted in retaining heat indoors they also assisted with air cooling.  In my judgment the blinds at Cloud 8 are domestic electrical appliances and are not appliances designed to heat space or provide air cooling. Central heating and air-conditioning units specifically carry out those functions.  Mr Perry’s blinds assist in these functions.

47.   Mr Perry has repeatedly maintained that his blinds should be treated as falling within the description of goods ordinarily incorporated by builders in a building.  He has in various E mails made certain admissions which did not help his arguments. For instance, on 29 June 2004 he said “My self build is unusual in many ways”; on 26 July 2004 when referring to his building – “It is leading edge of technology …”;  on 29 June 2004 and 3 December 2004 he stated that the blinds are “not ordinarily put into ordinary houses.”

48.   The overall tenor of the Appellant’s remarks both in correspondence and at the tribunal hearing is that although the blinds are not of a description commonly or usually installed in new houses, the time has come for them to be considered to be ‘ordinarily incorporated’.

49.   He even admits in his E mail of 26 January 2005 “the tribunal does not have the remit to say the rules has been overtaken by circumstances, so it’s no win in my case.  I agree that the HMCE rule as it is written is being correctly interpreted …”

It may be in the fullness of time that his blinds will be accepted as a normal installation and be treated as solar panels became some years ago.  But that time has not been reached yet.

Taking all these factors into account, this tribunal reaches the following conclusion.

Decision

50.   The appeal is dismissed.  There is no order as to costs.

RODNEY P HUGGINS
Chairman

Release date: 16 January 2006

LON/05/0369		

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££Tom Perry v Her Majesty's Revenue and Customs [2005] UKVAT V19428 (16 January 2006)